What is an asset class?
An asset class refers to a group of assets that are considered to have similar risk and return characteristics.
VicSuper invests in five different asset classes:
- Real assets
- Fixed interest
Equities are often called company shares or stocks. This asset class usually provides the highest average long-term returns but may also be subject to a higher risk of low or negative returns (high volatility) in the short to medium term.
Equities are classified as growth assets because they primarily provide returns in the form of capital gain (or loss) as well as a dividend or income yield.
VicSuper's investments in this asset class are shares in public companies listed on stock exchanges, which can be bought and sold by the public. The asset class is made up of three sub-asset classes, being Australian equities, International developed market equities and international emerging market equities.
Returns are made when the market price increases and dividends are paid. On the other hand, investment losses are made when the market price of these shares decreases.
Investments in this asset class currently consist of, but is not limited to, Australian and international private (unlisted) equity, credit and absolute return strategies. The private equity sub-asset class contains equities that are not listed on stock exchanges.
Over time other sub-asset classes may be added to alternatives. The alternatives asset class will hold investments that do not fall under any of the other four asset classes. In line with industry practice, VicSuper has defined the alternatives asset class as exhibiting the attributes of both growth and defensive assets.
These are assets such as office buildings, shopping centres and industrial buildings. These investments are usually structured for capital growth and rental income. Returns are made from rental income and increases in property market value.
These are assets that deliver services necessary for daily life and economic activity such as airports, seaports, railways, power and water utilities (including renewables), toll roads and pipelines. Returns are made from fees, patronage, rental income and the revaluation of assets.
Agriculture and timber
VicSuper's investments in agriculture include land and water assets primarily located in northern Victoria. Returns are currently derived from traditional broad-acre agriculture, water revenue streams and the movement in asset market value. VicSuper’s investments in timber assets (mainly plantation timber or managed forests) are managed for the production of pulp, chip, sawn timber and higher-value wood products. Returns are currently derived from traditional broad-acre agriculture, water revenue streams and the movement in asset market value.
These are investments in debt securities issued by governments, semi-government agencies, supranationals/sovereigns agencies and corporations. Often called 'bonds', they are issued for a set amount (the principal or face value) over an agreed period, usually at a set interest rate (the yield). Returns are made from regular coupon payments and the movement in capital value.
These are short-term (12 months or less) and floating rate investments held in bank accounts, bank bills, negotiable certificates of deposit, other bank deposits/securities, and corporate securities. Interest earned provides returns, which are generally reliable and consistent but usually lower than the other asset classes.
Cash and fixed interest are considered defensive asset classes, as they are not subject to the level of volatility experienced by some other asset classes such as equities.
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