The Cash option is designed to provide members with returns in line with the UBS Bank Bill Index. The UBS Bank Bill Index reflects wholesale bank lending rates. UniSuper’s Cash option invests in a range of short-term bank deposits and money market securities out to a maximum maturity of around one year.

For more investment information specific to your membership category, please visit the product information  page.

The Australian Bond (formerly Australian Fixed Interest) option contains a range of debt securities such as bonds. A bond is a loan to a government, corporation (such as banks) or other borrowers. The loan will generally pay interest and principal back to the bond holder over its term to maturity. UniSuper’s Australian Bond option is benchmarked against the UBS Government Index.

For more investment information specific to your membership category, please visit the product information  page.

UniSuper has recorded strong long-term returns relative to industry peers. According to the latest survey released by superannuation industry ratings and research company, SuperRatings, UniSuper’s flagship Balanced investment option (where the majority of UniSuper accounts are invested) has achieved top quartile performance over each of the 3, 5, 7 and 10 year periods ending 30 June 2011.

In fact, long-term performance across all UniSuper investment options has been strong with all of our investment options ranking in the top quartile of their respective sections in the SuperRatings survey over the 10 year period ending 30 June 2011 and in either the first or second quartile for five and seven year returns ending 30 June 2011. 

UniSuper has delivered these performance results with investment costs remaining among the lowest of all industry superannuation funds. Past performance is not an indicator of future performance.

UniSuper’s published returns are historical returns for a period net of 15% tax. Published bank rates are typically forward looking annual rates gross of tax. Comparing historical with prospective rates, net and gross of tax can make return comparison misleading. 

Securities in the Australian Bond (formerly Australian Fixed Interest) option include loans to borrowers such as governments and corporations. The interest rate paid on the loan is generally fixed as a percentage payment or as a percentage over some reference rate.

The bond market constantly reassesses interest rates based on factors such as the direction of monetary policy, inflation and borrower credit worthiness. The current interest rates priced by the market (market yields) affect the valuation of the holdings of securities in the Australian Bond option. These valuation changes can affect returns on a daily basis.

Bond prices typically have an inverse relationship with interest rates (i.e. higher interest rates means lower bond prices, and vice versa), therefore the current interest rates priced by the market (market yields) affect the valuation of the holdings of securities in the Australian Bond option. These valuation changes can therefore generate negative returns on a given day or over a given time period.

UniSuper invests across various international markets on behalf of its members.

International investments are denominated in their local currency (for example US Dollars, Euro, Pound Sterling and Japanese Yen as well as many other global currencies). 

When the Australian dollar rises (strengthens) against another currency, this has the impact of decreasing the Australian dollar value of the international investment, and conversely when the Australian dollar falls (weakens) against another currency, this has the impact of increasing the Australian dollar value of the international investment. 

For example:

A parcel of US shares is valued at US$150.

The exchange rate between the Australian dollar and the US dollar is A$1=US$1.05.

The Australian dollar value of the US shares is (150 / 1.05) = A$142.86.

The Australian dollar then strengthens against the US dollar so that the exchange rate is A$1=US$1.10.

The Australian dollar value of the US shares is now (150 / 1.10) = A$136.36

As you can see, a rising Australian dollar (from US$1.05 to US$1.10 in the above example), has the impact of decreasing the Australian dollar value of the investment in US shares by A$6.50 (i.e. from A$142.86 to A$136.36).

To mitigate the risk of adverse currency movements, UniSuper has a currency hedging program in place enabling a portion of the allocation to international investments to be hedged against currency movements. 

International investments may be between 0% and 100% hedged at any given time.

Fluctuating exchange rates between the Australian dollar and other global currencies have the impact of changing the Australian dollar value of UniSuper’s international investments.

To mitigate the risk of adverse currency movements, UniSuper has a currency hedging program in place enabling a portion of the allocation to international investments to be hedged against currency movements. 

Hedging involves using portfolio management strategies (e.g. currency derivatives) to effectively ‘lock in’ the exchange rate at which UniSuper’s international investments are valued.  

UniSuper has appointed specialist currency hedging managers to maintain the appropriate currency hedge levels in place, as determined by the UniSuper Investment Team.  International investments may be between 0% and 100% hedged at any given time.

A range of factors are taken into account when selecting external fund managers to manage your retirement savings.  For more information, see the How investment managers are selected section.

UniSuper has a competitive advantage in managing funds internally due to its scale and growth.  This provides UniSuper with information and access advantages relative to other institutions. 

It is important to note that the internally managed portfolios do not compete directly in the space of our external managers. 

The benefits to UniSuper’s members include:

• Compelling economics as it lowers management fees, brokerage and other intermediary fees
• Complements the existing strategies
• Increases scalability and frees up capacity in allocating to ‘special’ managers who are typically constrained by their funds under management
• Provides much closer 'hands on' after-tax performance management.  For example, there is a focus on effectively capturing franking credits for the Australian equities portfolios as they are very valuable to superannuation funds, and
• Improves market intelligence.

UniSuper has had a positive opinion of emerging markets for some time and there have been substantial improvements in economic management across a number of emerging economies.

Large current account deficits, weak fiscal positions and high inflation rates that contributed to crises in the past have since substantially reduced.

There is also greater use of floating or less rigid currency regimes, which help alleviate potential sources of instability.

Lastly, the evidence of contagion (i.e. events in one particular country affecting emerging market sentiment more broadly) has also lowered.

Emerging economies are expected to continue to grow more quickly than developed markets as emerging countries continue to benefit from a strong trend for the developed world to outsource certain activities in an effort to reduce costs. 

Examples include India (software), Taiwan and Korea (electronics) as well as Mexico/China (manufacturing). 

The development of more affluent middle classes in these economies is also fuelling domestic demand.  As a consequence, such economies are becoming less dependent on general global economic conditions, as the structural demand for their products and services continues to grow from multiple sources.

Whilst UniSuper is attracted to emerging markets for the above reasons, we believe that within emerging markets, Asia (ex Japan) markets are the most attractive for their structural, consumption and demographic profiles.

UniSuper has always excluded tobacco from its Socially Responsible Investment options. In addition, in 2011, we made the decision to screen tobacco companies from our mainstream investment portfolio. This decision was made on the basis that:

• tobacco stocks were a small part of our total portfolio and had delivered minimal outperformance, and
• the tobacco industry faces an uncertain regulatory future and has potential long tail liabilities associated with it. 

As such, we believe the long term risks of owning tobacco stocks outweighed the benefits.

We believe that as an institutional investor we have a duty to be an active share owner and drive appropriate change in corporate behaviour over time to protect and enhance the value of our members’ assets. 

This is a theme central to our investment practices and accordingly, UniSuper exercises its proxy votes and directly engages with companies where we have concerns around particular practices.

This means we meet with company directors and senior management to discuss our concerns and ascertain how the company is going to manage various matters going forward. In addition, our fund managers engage with the companies in which we are invested, and we are a member of the Australian Council of Superannuation Investors (ACSI). ACSI engages (on behalf of its members) with a large number of Australian companies each year on a range of environmental social and governance matters.

For more information, see the Responsible investing section.