The changes outlined below have been introduced to enhance and protect the strategies and will not affect the overall risk and return profiles of each of the strategies.
Changes to the return objectives
The return objectives for all options have been lowered due to a lower expected return in the medium term. The following table summarises the changes.
2016-17 | 2017-18 | |
|---|---|---|
Growth | CPI+4.0% | CPI+3.5% |
Balanced | CPI+3.0% | CPI+2.25% |
Conservative | CPI+2.0% | CPI+1.0% |
Cash | CPI | Cash |
University Conservative Diversified | CPI+1.0% | CPI+0.5% |
University Cash | CPI | Cash |
Trustee Selection | CPI+4.5% | CPI+4.0% |
Strategic asset allocation changes
As part of the review, a number of minor strategic asset allocation changes have been made both within and between asset classes across the State Super Growth, Balanced, Conservative and Trustee Selection Strategies. Some of these changes have been to re-weight the allocation between the liquid defensive and alternatives asset classes, but the majority of changes have been within the categories (i.e. liquid growth, liquid defensive and alternatives) in order to provide an increased opportunity for greater returns, improved diversification and additional downside risk protection.
Growth Balanced and Conservative Strategy
Given a lower expected return, we increased the weighting to liquid growth modestly. Within the liquid growth category there has been an increase to emerging market equities at the expense of developed market equities. Liquid defensive category has been adjusted to increase the weighting to inflation linked bonds (domestic and international) which has been financed from a decrease in the weighting to Australian and International Sovereign Bonds.
We continue to increase the weighting towards Alternatives to benefit from unconventional return drivers such as alternative debt. This allocation can include strategies like corporate credit, high yield bonds, and emerging market debt.
Additionally, we have reduced weightings to fixed income and increased weightings to cash for the Balanced and Conservative strategy given the much lower expected return for fixed income. It is prudent preserve the assets via the allocation to cash.
Trustee Selection Strategy
Trustee Selection is a defined benefit scheme with different investment time horizon to DC options. This allows Trustee Selection to benefit from additional premium by investing into less liquid assets. This is reflected in by the increase in weightings to Opportunistic Investments. Additionally, we have included Defensive strategy to mitigate sequencing risk associated with Trustee Selection. These investments are funded by a decrease in International Fixed Income and Liquid Growth assets e.g. Equities.
No changes have been made to the asset allocations for Cash and University Cash Strategies.
Dynamic asset allocation changes
Changes to the dynamic asset allocation ranges of the State Super investment strategies are limited to the Balanced, Conservative and Trustee Selection Strategies. The changes to these strategies correspond with the percentage changes made to underlying strategic asset allocations.