Investment Strategy for the ABC Super Fund, 15 July 2014

The ABC Super Fund has the following members:

John and Mary are both in the accumulation phase and are seeking long-term growth from their superannuation investments.

Investment objectives

Medium term (3 to 5 years)

• To maximise the value of the members’ savings;
• To achieve a medium term return of inflation (as measured by the Consumer Price Index) plus 3.0%pa over a rolling 5 year period, that historically equates to the rate of return that may be expected from a blended ‘balanced’/’growth’ portfolio (approximately 70% growth assets); and
• Where desirable and prudent, take advantage of dividend imputation to minimise any tax payable by the Fund.

Short term (two years or less)

• To ensure sufficient liquidity to meet operating expenses and taxation liabilities as they fall due.

Investment strategy

The investment strategy is the method to be implemented in order for the Trustee to achieve the investment objectives. The investment strategy of the Trustee is to invest the fund’s assets in the following products:

These ranges are purely indicative and the Trustee may vary the allocations at any time if satisfied that conditions warrant such a change.

In arriving at the investment strategy, the Trustee considered the following:

1. RISK

Bank Account/Term Deposit/Bank Bills

The Trustee invests in a variety of short-term money market securities and deposits. These are either Commonwealth Government Guaranteed, or issued by an Authorised Deposit Taking Institution. With the latter, deposits up to $250,000 (on a per name/per institution basis) are guaranteed under the Financial Claims Scheme. Accordingly, the Trustee considers that these investments are reasonably risk free.

Shares

The main risk in shares is the volatility in the share price. With respect to risk, the Trustee will ensure that the portfolio is reasonably well diversified (both across industry sectors and in the number of securities), which should help to reduce the overall volatility in the portfolio. The Trustee also intends to hold the shares for the medium term (> 5 years) and should not be required to sell in the short term.

Managed funds

Exposure to other asset classes such as fixed interest, international shares, property and international fixed interest will generally be accessed through the use of professional fund managers (and managed funds or exchange traded funds). The main risk with investing in managed funds is the volatility in the unit price. With respect to the risk, the Trustee may select, where appropriate, a range of professional investment managers and funds to diversify the Fund’s portfolio. In some asset classes, the Trustee may invest in an “index style” fund, to minimise the risk of ‘investment manager selection’. The Trustee also intends to hold the investments in the various funds for the medium term (>5 years) and should not be required to sell (redeem) in the short term.

2. RETURN

Bank Account/ Term Deposit/Bank Bills

Generally, less than $25,000 will be kept in the ‘high yield’ bank account in order to maximise returns in the other asset accounts.

The Fund should achieve returns of approximately the 90 day bank bill rate from these investments.

Shares

The exposure to shares should provide an effective hedge against inflation over rolling five year periods. The average dividend yield is around 4%, which is enhanced through the benefits of dividend imputation and capital growth.

Managed funds

Exposure to other asset classes such as fixed interest, international shares, property and international fixed interest will generally be accessed through the use of professional fund managers (and managed funds). While these investments should provide an effective hedge against inflation, the average return will vary according to the level of growth assets in the various managed funds. The Trustee expects distributions from the managed funds to be around 4.0%, which may be enhanced through capital growth, occasional distributions of capital gains and some dividend imputation.

3. DIVERSIFICATION OF INVESTMENT STRATEGY

The Trustee has considered the diversification of the Fund’s investments and is of the opinion that the strategy is appropriate given the size of the Fund in terms of both investments and the number of members.

4. LIQUIDITY OF INVESTMENT STRATEGY

The Trustee is of the opinion that the investment strategy is structured in such a manner that the Fund is sufficiently liquid to discharge its current and future liabilities.

Short term liabilities include tax liabilities, annual return fees, audit fees and investment adviser fees.

The Trustee does not expect membership of the Fund to fall in the short term, as a consequence of the small number of members and the close relationship between members. If, however, a member terminates his or her membership, the Fund can choose to liquidate assets if necessary or pay benefits ‘in-specie’.