Types of asset classes
There are two broad types of asset classes – defensive and growth.
Defensive assets are usually more stable. They're less likely to lose money, and returns on the investment will be lower over the long term.
Growth assets have higher expected returns and the risks of losing money are higher, especially over the short term.
Asset class risk and return characteristics
Defensive assets consist of more stable investments with steadier returns. Because they usually carry lower risk levels, defensive assets are more likely to generate lower levels of return over the long term.
We usually expect defensive assets to provide returns in the form of income. For example if you deposit money in a bank account, you may receive income as interest on the money deposited.
Types of defensive assets
Cash investments include money in bank deposits or in short-term money market securities.
The investment returns largely come from interest paid on the amount invested, as well as any increase (or decrease, in the case of negative returns) in the value of the underlying securities due to changing interest rates.
Short-term money market securities are different from bank deposits and can increase or decrease in value.
How does cash make a return on investment?
Returns come from interest paid on the amount invested.
Returns also come from increases or decreases in value of the underlying securities due to changing interest rates.
How likely is cash to rise or fall in value?
Cash is generally a stable investment that provides steady returns. The chance of losing money on a cash investment over a one-year period is considered remote, but possible.
Its value tends to fluctuate due to changing interest rates. Returns tend to be the lowest of all asset classes over time.
Short-term money market securities can increase or decrease in value over time, unlike money in bank deposits.
Our investment options
These pre-mixed options invest in a mix of cash and other asset classes:
These sector options invest in cash:
Fixed-interest investments include securities such as bonds and debentures.
In buying fixed-interest securities, the investor is effectively lending money to a corporation or government.
The returns arise from the interest paid on this ‘loan’ as well as any increase or decrease in the value of the underlying securities, primarily due to changing interest rates.
How does fixed interest make a return on investment?
Returns come from interest paid on the loan amount. Returns also come from increases or decreases in value of the underlying securities due to changing interest rates.
Fixed-interest investments tend to provide better returns than cash over the long term, but lower returns than property and shares. Their value tends to fluctuate more than cash, but less than property and shares.
Our investment options
These pre-mixed options invest in a mix of fixed interest and other asset classes:
These sector options invest in fixed interest:
Growth assets grow your investment over the long term. While they offer higher return potential, they are seen as higher risk investments because of their volatility, especially over shorter time periods of one to three years.
Understanding capital growth
An increase in a company’s value is known as capital growth, and a decrease is known as capital loss. We generally expect growth assets to provide returns in the form of capital growth.
For example, as a shareholder you may receive income as dividends on the shares you own. However, most of the return usually comes from changes in the value of the company over time, as determined by its share price. These returns are influenced by market fluctuations, so they can change a lot in the short term - this is known as volatility.
Types of growth assets
Publicly listed companies sell shares to external investors. When you buy a share, you buy part of a company and this allows you to participate in that company’s profits via share price growth and/or dividend payments. Shares include Real Estate Investment Trusts (REITs).
As a company grows, it re-invests all or part of its profits back into the company, which can result in the price of the company increasing as the profits of the company increase. If the company doesn’t re-invest in itself, the profits can be shared with its investors through a dividend payment. This is where profits are distributed directly to shareholders in proportion to the shares held. Some companies do a combination of both.
UniSuper invests in both Australian and international shares listed on a range of exchanges, such as the Australian Stock Exchange and the New York Stock Exchange.
How do shares make a return on investment?
Returns come from increases or decreases in share price. Returns also come from income from the company’s profits which are paid to shareholders as dividends
Shares can potentially earn the highest return over the long term. Shares are considered a high-risk investment, and their value is more likely to fluctuate in the short term.
Our investment options
These pre-mixed options invest in a mix of shares and other asset classes:
- Conservative Balanced
- Sustainable Balanced
- High Growth
- Sustainable High Growth
These sector options invest in shares:
Infrastructure and private equity
Infrastructure comprises physical assets and related operations that provide businesses and society with essential services. They are diversified across a range of sectors, including:
- transportation (including airports and toll roads)
- utilities (such as water and energy)
- natural resources (including timber and mining).
Investments within these sectors are further diversified by:
- selecting assets in different geographic locations
- investing at various stages through a particular asset’s life cycle—for example, construction, growth and mature.
Unlisted infrastructure investments potentially provide investors with stable, long-term capital growth and cash distributions.
The infrastructure portfolio is comprised of a range of investments, some of which are managed directly by UniSuper and others that are managed by external fund managers.
Private equity investments
The private equity portfolio comprises investments in unlisted companies held through a number of Australian and international private equity funds.
Investments are diversified across a broad range of sectors including:
- venture capital (funds for start-up firms, small businesses and specialised projects with growth potential)
- expansion capital (funds for more mature enterprises looking to expand or restructure)
UniSuper’s private equity investments are also diversified across regions and countries, including Australia, the United States, Europe and Asia Pacific. UniSuper generally holds these investments through underlying private equity funds as a limited partner.
How do infrastructure and private equity investments make a return on investment?
Returns come from increases or decreases in value.
Returns also come from income.
Infrastructure assets may include incidental holdings in property and interests in land or physical infrastructure. However, benefitting from increases in the value of holding property and interests in land, or making returns from these holdings, is not the main purpose of investing in infrastructure assets.
How likely are infrastructure and private equity investments to rise or fall in value?
Infrastructure and private equity investments potentially earn more than property, fixed interest and cash over the long term. Their value tends to fluctuate more than property, fixed interest and cash in the short term.
Infrastructure and private equity investments are considered a medium-to-high risk investment
Our investment options
These pre-mixed options invest in a mix of infrastructure, private equity and other asset classes:
Property investments are investments in land and the facilities on it, including:
- industrial, retail or commercial real estate
- unlisted property funds
- listed property trusts.
Property investments fall into two categories: unlisted property and listed property.
Unlisted property typically comprises investments in high-quality, professionally managed retail, office or industrial real estate. It focusses on producing returns from both rental income and capital growth.
Over the long term, property returns are potentially higher than fixed interest or cash, but less than shares. Rental income is generally a significant component of property returns, which tends to enhance the stability of returns.
Because unlisted property doesn’t trade on stock markets, prices are determined by an independent valuation process.
As property is a real asset, it has inherent inflation protection characteristics. In an investment portfolio, property can diversify investment risk due to its low correlation to other asset classes, such as shares and fixed interest.
UniSuper’s unlisted property portfolio, located almost entirely in Australia, focuses on high quality, core real estate in primary markets.
Our listed property investments are investments in property trusts, which are listed on a publicly traded stock exchange. Pricing is based on market movements as interests are listed and traded on stock markets, as opposed to underlying asset valuations.
Like unlisted property, listed property allows investors to purchase interests in a diversified and professionally managed portfolio of real estate across the commercial, industrial and retail sectors. It focusses on producing returns from both rental income and capital growth.
UniSuper’s listed property portfolio includes Australian and internationally listed property securities.
How does property make a return on investment?
Returns from unlisted property come from increases or decreases in value and from income in the form of rent.
Returns from listed property come from increases or decreases in share price and income from dividends.
We invest in listed property through entities known as Listed Real Estate Investment Trusts (REITs), which are considered investments in their own right. Listed REITs only earn some rental income; a significant proportion of their income is generated from the management or development fees which they charge their clients. The investment returns from listed REITs are different from and more volatile than returns from investing in real estate because listed share prices are affected by a range of factors influencing share prices, such as market sentiment and macroeconomic conditions.
How likely is property to rise or fall in value?
Property potentially earns more than fixed interest and cash over the long term, but less than shares.
Its value tends to fluctuate over time – more than fixed interest and cash, but less than shares.
Our investment options
These pre-mixed options invest in a mix of unlisted property, listed property and other asset classes:
These sector options invest in listed property: