This glossary explains some common investment and insurance terms.
Active managers aim to out-perform relevant market indices (disclosed as investment ‘benchmarks’) by regularly reviewing their investments based on their own research and analysis. The alternative to this investment approach is called ‘passive management’, which aims replicate market index returns.
Traditionally, super funds have invested in mainstream asset classes like listed shares, property, bonds and cash. Most funds now include other types of investments within their balanced portfolios to achieve greater diversification. These ‘alternative investments’ may include venture capital, private equity, absolute return funds and unlisted companies. Super funds can invest in these directly, or through pooled syndicates.
An asset allocation benchmark is the longer-term allocation target for an investment portfolio across different asset classes (shares, bonds, property, cash etc.). Asset allocations are set around this benchmark to factor in how various investments respond to market movements. Asset Allocation Benchmarks serve as a guide for making investment allocation adjustments, which may be required from time to time. In normal conditions, Club Plus Super’s cash flow will be invested to maintain allocations as close to the benchmark as possible.
This refers to the category of an investment (e.g. Australian Shares, Overseas Shares, Property and Cash). All asset classes have different risk and return characteristics.
These managers invest in Australian companies through the purchase and sale of shares (listed, unlisted, or combination of both) on the Australian Stock Exchange. Australian shares managers employed by Club Plus Super only invest in the shares of Australian companies listed on the Australian Stock Exchange.
This refers to funds invested across all major asset classes (usually including shares, property, fixed interest and cash, with a weighting towards equity and property assets). In terms of risk and return, balanced funds are typically more volatile than cash and fixed interest funds, but less volatile than those invested solely in shares and property. The specific asset allocation of individual balanced funds varies, so it’s not possible to compare them without knowing those allocations.
Also known as fixed interest securities, these investments have a fixed maturity value that is paid to investors at a predetermined future date. Until that date, they pay a regular income known as a ‘coupon’ payment.
The Consumer Price Index is a figure published by the Australian Bureau of Statistics each quarter to reflect fluctuations in the cost of living in all Australian capital cities.
This is the rate at which investment returns are applied to your account for each investment option held.
A derivative is essentially an agreement (financial contract) between two parties. As the name suggests, the value of this contract is ‘derived’ from one or more underlying assets such as stocks, bonds, commodities, currencies, interest rates and market indices. Our investment managers only use derivatives in very limited circumstances.
This refers to the outright ownership of property, or ownership through an unlisted property trust. Income is derived from the rental and sale of commercial or residential properties. Investing in direct property is usually a long-term investment strategy as there may be delays in selling, making it unsuitable for those who need quick access to invested funds. Direct property generally experiences less fluctuation in value.
Each asset class generally performs differently in response to various market conditions. For example, shares might perform well at the same time property is performing badly (and vice-versa). The aim of diversification is to achieve more consistent long term returns by investing across a broad range of asset classes.
This is the rate at which an investment’s value increases over five years, based on inflation. Inflation is determined by movements in the Consumer Price Index.
Australian companies may pass credits for the company tax paid in a financial year to their shareholders through dividends. These credits are called Franking Credits, or Imputation Credits. Tax-paying shareholders must include these credits in their reportable taxable income, but can use them to reduce their tax payable. Some shareholders may be entitled to a refund of Franking Credits from the ATO.
Hedging aims to reduce the impact of outside forces on investments. ‘Currency hedging’ aims to reduce the effect of currency movements on the value on investments.
These are property investment trusts where ownership is represented by units, which are traded on the Australian Stock Market in a similar way to listed shares. These trusts may borrow to funds, or use capital provided by unit holders, to purchase buildings. The value of these securities can fall and rise in response to trading activity and the effect of interest rate movements on their borrowings.
Retail cash management trusts are investment products which hold short term securities like 90 day bank bills and short term government securities. The average returns of these trusts are published monthly in the Reserve Bank Statistical Bulletin (table F04 under ‘Cash Management Trusts’).
Risk is a term used in many different ways. In the context of superannuation, risk generally refers to the likelihood of an account to lose value. Such falls may occur for various reasons, but in well-diversified super accounts they are more likely the result of market and economic cycles.
Refers to how much values of particular investments or markets fluctuate in the short term.