Investment Policy Statement
27 August 2008
Diocesan Investment Committee
Anglican Diocese of Brisbane
The Diocesan Investment Committee (“DIC”) is established as a Standing Committee of the Diocesan
Services Commission (“DSC”) in accordance with clause 25(g) of the Diocesan Governance Canon.
The DIC will make recommendations to the DSC relating to the management of Diocesan reserves, to
provide the financial resources necessary to support and expand the mission of the church.
The DIC will establish an Investment Fund (“The Fund”) to manage a broadly based portfolio of
investments for this purpose.
2. STATEMENT OF PURPOSE
The purpose of The Fund is to provide income to underpin the Diocesan budget to provide services
on an annual basis.
The aim of the Fund is to provide an income stream in perpetuity – that is, to generate income while
retaining capital that will retain at least its real (i.e. inflation adjusted) value.
For example, assuming a long-term annual average return for the fund to be approximately 8%, with
an inflation rate of 3%, the Fund would not be able to provide a regular income of greater than 5% per
annum in order to avoid decapitalisation over time. The income paid out each year in these
circumstances would be able to be indexed each year in line with inflation.
3. STATEMENT OF RESPONSIBILITIES
The following parties are associated with the operation of the Fund:
3.1 Diocesan Investment Committee (DIC), the Diocesan Services Commission (DSC) and the
Diocesan Council (DC)
• Is responsible for the management of the Fund;
• Is authorised to appoint a professional Investment Consultant(s) to advise on an appropriate
strategy for investing in the Fund;
• Is authorised to appoint a Custodian to the Fund;
• Can approve an Investment Plan;
• Create new Funds as may be deemed appropriate from time to time;
• Is authorised to remove Investment Consultants and or Custodians.
In exercising these powers, the DIC should consult with the DSC. In particular, the DIC should:
• Report quarterly on the Investment Plan and its performance to the DSC.
The Investment Consultant is charged with the responsibility to assist the DIC in:
• Developing ongoing investment policy;
• Assisting in investment selection
• Reviewing investment performance
• Assisting the DIC in conducting investment activities associated with the organisation in
accordance with FPA standards.
The Investment Consultant is to be a third party to the Diocese and must hold an Australian
Financial Services Licence (AFSL). All recommended investments must have been researched
and approved by the Investment Consultant. All investment decisions must be authorised by the
The Investment Consultant is to develop an Investment Plan and submit it to the DIC for
approval. The Plan is to be consistent with the investment policy outlined in the Preamble and
the Investment Guidelines set out in this document.
Once approved, the Investment Consultant is to be responsible for:
• Advising on how to best implement the Plan;
• Managing investment funds in accordance with the instructions issued by the DIC;
• Reviewing subsequent investment performance;
• Providing regular reports on performance (at least quarterly or as required) to the DIC, (special
reporting requirements relating to Options and Futures are set out elsewhere in this document).
The Custodian is charged with the responsibility for safekeeping securities, collections and
disbursement, and periodic statements.
4.1 General Investment Objectives
• Given the purpose identified in Section 2 above, the DIC recognises the importance of adopting a
long term horizon of more than 7 years when formulating investment policies and strategies.
• As a result, short-term fluctuations in value will be considered secondary to long-term investment
results, and indeed be apart of a long-term approach to investing which will require exposure to
growth-oriented investments such as shares and property.
• The Diocese is a tax exempt entity and accordingly this should be taken into consideration when
developing the investment strategy
• The relationship between risk and return is fundamental to the investment strategy of the DIC.
• Investments will be managed with a view to ensuring that there will be sufficient liquidity to meet
expected cashflow requirements.
• Risk exposure is to be managed through prudent investment management and diversification
achieved by investing in different asset and sub-asset classes with additional diversification
achieved through the use of different fund managers.
• The DIC would prefer not to invest directly in property.
• Distributions from investments of an income and/or capital nature will be credited to a cash
management style trust account for managing cashflow and portfolio rebalancing requirements.
4.2 Specific Investment Objectives
• The Fund has a long-term growth profile and its income objective will be reviewed at least
• The aim of the Fund is to achieve a long-term return of income plus capital growth that exceeds
the Consumer Price Index (CPI) by 5% (?) over rolling 5 year periods (before fees and
management expenses), utilising a risk profile to be determined from time to time by the DIC. It
is understood that the ability to achieve this objective is directly related to the Risk Profile
• The investment time horizon of the Fund is long-term (more than 7 years).
5. PORTFOLIO CONSTRUCTION ISSUES
5.1 Portfolio Construction
In developing the DIC’s views in relation to construction of investment portfolios the DIC need
to consider a number of issues, including:
• Asset Allocation;
• Income taken from the Fund and Income reinvested;
• Managed v Direct Investments
• Passive v Active Management
• Strategic v Tactical Asset Allocation
• Alternative investment strategies (including Absolute Return Funds)
• Income v Capital Growth
In constructing portfolios a number of decisions need to be taken and choices made between
competing approaches. It is important to follow a structured and systematic process in
constructing portfolios which is founded upon the key issues outlined above. The Key steps are
outlined in Figure 1 below:
Identify Identify Asset
Determine Current Risks
Figure 1 – The Investment Strategy Process
Strategic v Tactical Asset Allocation approaches
Strategic Asset Allocation
Strategic Asset Allocation is the process whereby an initial or benchmark asset allocation
decision is made in line with the DIC’s view of the world and risk profile.
Once this “benchmark” has been agreed upon, a strategic asset allocation approach often involves
rebalancing the future asset allocation back to the benchmark. This is because different asset
classes perform differently during an economic cycle.
A strategic benchmark approach to asset allocation involves establishing a starting point or
benchmark. This will vary from portfolio to portfolio and will inevitably be influenced by the
prevailing views on each asset class at the time the benchmark is set.
This approach, in theory, effectively involves a process of buying low and selling high, as the
outperforming asset class is sold down to top up an underperforming one.
An aspect of this approach however is high transaction costs (as the Fund is tax exempt, another
feature of this strategy, namely Capital Gains Tax, does not apply).
One way to ameliorate returns while reducing transactional costs is to allow a range of tolerance
around each asset class benchmark. Such a tolerance provides a slight freedom of movement to
allow the funds to react to market movements without the need to micromanage the portfolio.
Depending on the asset class, tolerances of between 5% - 15% are appropriate.
There are several ways in which a portfolio can be rebalanced:
• By switching from one fund to another, or
• By utilising surplus cash generated by the investments to add to the underweight funds
• A combination of the two
The second and third approaches reduce the need to sell down an investment that may continue to
Tactical Asset Allocation
A pure tactical asset allocation approach involves making regular and shorter-term changes to
asset allocation between sectors, based on short-term views of market direction. This may mean
having a small or nil exposure to a particular asset class at any one time. Some portfolio
managers apply this approach at the portfolio level or use a tactical overlay (specialty manager) to
give effect to short term view of market direction. This approach relies on predicting and
exploiting short-term inefficiencies in markets to achieve its results. In cases where there are
larger movements in underlying assets this approach can involve additional costs.
Research undertaken by Mercers indicates that almost no tactical asset allocation managers have
added any significant value consistently over time. When adjusted for risk and costs, tactical
asset allocation can in fact reduce returns on portfolios. This is not too surprising given that pure
tactical asset allocation requires the ability of the manager to consistently predict short-term
market directions in order to be successful. There is no evidence anyone has been able to do this
consistently over extended periods of time.
The DIC has taken the view that the Strategic Asset Allocation approach and rebalancing the
portfolios through cashflow is the best approach for the Fund. Some tolerance is required around
each asset class within the Fund, and this is shown in Appendix A.
Cashflow requirements require the Investment Consultant and the DIC to ensure that cash above
the required periodic payments of the Fund be used for portfolio rebalancing and investment
Passive v Active
The returns from financial markets are often broken into two key components:
Beta – this is the market return of a particular asset class.
Alpha – this is the additional return above Beta that a manager can provide through the
application of skill and market timing.
Passive management involves obtaining the Beta or market return which can be achieved at low
Active management involves the seeking of outperformance of market return or alpha by a
particular investment. This necessarily involves taking more risk than passive managers due to
the holding of concentrated portfolios and being over or underweight in some assets. It is the
objective of the active manager to “beat the market”.
It is particularly interesting to note the lack of academic literature (and consequently evidence)
supporting the perceived skill of active investment management. Rather, the evidence is
overwhelmingly in favour of price equilibrium of financial assets in financial markets, which
leads the DIC to favour broadly diversified, passively managed, low-cost managed investment
funds over direct asset ownership and active investment management.
In practice, it is always possible to identify a particular investment or active investment manager
that has delivered performance beyond a benchmark or index. However, this is always identified
in hindsight, and often the outperformance does not tend to be consistent from year to year.
Accordingly it is extremely difficult for investors to profit from trying to identify the next best
manager of money, particular after costs are considered.
The Fund currently holds direct investments in listed shares. Direct investment is a clear
example of “active” management as a concentrated position in each asset class is held. This
reality needs to be reviewed in the process of constructing portfolios and balanced with the
broader Investment Plan of the Fund.
The approach is therefore to only use active investment management as a complement to a core
of passively managed investments and where there are demonstrable, research-proven benefits for
so doing on an after fees basis. This approach is known as the Core-Satellite approach.
Managed v Direct Investments
A very important issue in considering the overall approach to portfolio construction is the issue of
direct versus managed investments. This is essentially a decision in relation to management and
control of investments as well as time and expertise.
There are a number of advantages and disadvantages of each approach, which needs to be
considered. A summary of some of the issues is as follows:
• Who controls decision making
• Customising portfolios to meet the needs of the DIC
• Cost efficiencies
• Access to Professional Management
• Access to information
• Administration and reporting
The choice of which approach to use will depend entirely on the requirements of the Diocese.
These requirements should be reviewed annually.
Taking into account these issues, managed funds would be an appropriate choice for a substantial
portion of the portfolio. Some asset classes (eg global equities) are effectively only available via
We recognise that the Fund holds a significant portion of the portfolio in direct investments. A
decision on whether or not to continue to hold these investments is appropriate taking into
account liquidity and diversification needs.
Before we discuss diversification, it is important to discuss asset classes.
Broadly speaking, there are two types of assets, growth and defensive. Defensive assets are those
that do not change significantly in value of themselves, and generally generate income only such
as interest. A typical example includes high-interest bank deposits.
Growth assets, on the other hand are those that have the potential to increase (and, on occasion,
decrease) in value. Such investments include shares and property. Income is generated through
the form of dividends or rent, and often has tax credits associated with it.
More specifically, Defensive assets include such assets as:
• Bank accounts
• Term deposits
• Fixed interest (both Australian and international)
Growth Assets include such assets as:
• Shares – both Australian and International
• Property – both Australian and International
Diversification takes many forms:
• Across asset classes
• Within Asset classes
• Across management styles
Diversification across asset classes is achieved by including an exposure in an investment
portfolio to more than one asset class. As described earlier, the process of diversifying financial
assets across different asset classes is referred to as the process of Asset Allocation, and
specifically, Strategic Asset Allocation is preferred to Tactical Asset Allocation.
Diversification within asset classes is achieved by ensuring a comprehensive spread of individual
financial assets in an investment portfolio. Having more than one financial asset in an asset class
helps reduce the risk to the portfolio, if an individual financial asset loses value.
Often, the best way to diversify within asset classes is to allocate capital to the known sub-asset
Numerous academic studies of asset allocation reveal that up to 94% of the variability of
investment portfolio returns can be attributable to the asset allocation process alone (Brinson eta l
1986,1990). Subsequent studies regarding passively managed, strategically asset allocated
investment portfolios suggest that the impact may be even greater than 94% (Ibbotson 2000).
In other words, in general the single biggest decision regarding the likely return on a portfolio is
the amount of exposure to growth assets – not the specific assets themselves. As the proportion
of growth assets increases within a portfolio, so too does the potential volatility. The tolerance
for this portfolio volatility is measured by a Risk Profile.
In practice, the desired asset allocation is determined by identifying the Risk Profile of the
investor. Measurements of risk profile can be simple, or complex – the more rigorous the
measurement, the more accurate the outcome. Matrices developed by Investment Professionals
correlate Risk Profile to various asset allocation models. Appendix B shows the effect of return
on portfolio constructions of various risk profile.
Note that the risk profile of an investor may necessitate a portfolio that might not have the
exposure to growth assets required to achieve the investors goals. In this case, one of two things
must occur. Either the goals are revised downwards, with consequently lower expectations of
returns, or by a process of education the clients risk profile is increased. Often, a combination of
the two may be required.
Often, the best way to diversify within asset classes is to allocate capital to the known sub-asset
classes. Academic research has strongly demonstrated the diversification and performance
benefits of this practice. For example, there is compelling evidence that including an exposure to
Small and Value companies in an equity portfolio is consistently rewarded.
It has been established that investors have little ability to consistently pick the best asset class or
sub-asset class in advance. As a result, evidence suggests that a diversified portfolio will reduce
risk without necessarily forgoing investment return. The key is lowering the risk of experiencing
negative returns over time.
Combining all of the Funds exposures, not more than 25% of the issued capital should be held in
any one professional Investment Manager. Recommendations for managed funds are to be
sourced from/ made by the Investment Consultant.
5.2 Strategic Asset Allocation
The Investment Consultant has developed a set of strategic asset allocation models for various
risk profiles to be chosen by the DIC. Please refer to Appendix A for this table.
The portfolio will be rebalanced within a tolerance of +/- 5% (subject to authorisation) towards
benchmark. This will be reviewed annually and take place as appropriate.
6 INVESTMENT CLASS GUIDELINES
Part of the holding may need to be readily available (ie within 30 days); the balance may be
maintained in a managed fund of a cash nature (generally available within one week of
processing a redemption request) or a short term deposit offered by an Australian based bank or
Both the at-call account and any enhanced cash fund are to be recommended by the Investment
Consultant with supporting reasons. Underlying assets within any enhanced cash fund or trust
must facilitate reasonable liquidity (up to 5 days) and be rated investment grade or higher.
6.2 Fixed Income Assets
The Fund may invest directly or indirectly (via wholesale managed fund/ unit trust(s)) in the
• Commercial Bills
• Promissory Notes
• Floating Rate Notes
• Medium Term Notes
• Mortgage Backed Securities
• Government/ Semi Government Bonds
• Hybrids and Income Securities
• Inflation Linked Bonds
Creditworthiness and Security
Individual investments must be rated at least Investment Grade by Standard & Poor’s and/ or
Moody’s to be considered. Please refer to Appendix C for details. If no explicit credit rating is
available, a determination of a “shadow” rating is determined in assessing the creditworthiness of
a specific security. The minimum credit ratings allowable vary depending upon the specific sub
asset class, i.e. mortgages, hybrids, term deposits etc. A schedule has been prepared to provide
constraints on minimum credit ratings.
For individual securities the minimum credit rating that The Fund will accept will be;
• Short Term (up to 12 months); A2 [satisfactory capacity to pay]
• Medium/ Long Term (beyond 12 months); A [satisfactory capacity to pay]
In the event of a downgrade below investment grade and the security is retained – the Investment
Consultant should notify and advise the DIC.
Mortgage Loans may not be made directly. However, mortgage investments may be made
through the utilisation of a wholesale managed fund(s) or funds deposited with ANFIN where
there is a conservative loan-to-value ratio on the mortgages granted against property values.
The maximum average duration of any investment is 24 months from the date of its purchase.
Recommendations for both managed funds and direct securities are to be sourced from/ made by
the Investment Consultant
No fixed individual floats are to be accepted and taken up by the Fund and limits apply to the
allocation of sub asset classes under the fixed income exposure of the investment portfolio.
The only sub-asset class that has a maximum of 100% is fixed term deposits. These deposits are
the highest grade fixed income investment.
International Fixed Interest Investments if they become available are subject to the same credit
ratings as Australian Fixed Income Assets.
6.3 Property Investments
6.3.1 Property Securities
The Fund may invest directly or indirectly (via managed funds) in securities listed and selected
from the S&P/ ASX 300 (Property Trusts). It is recommended that The Fund can only invest in
listed property trusts and no investment can be made into individual holdings, but must be made
via managed funds.
The Fund may also invest indirectly in global real estate/ property securities on the provision that
it is no more than 20% of the listed property exposure. Therefore no specific direct investment
into Global property.
In line with the currency hedging policy described below, these wholesale managed funds should
be hedged to the Australian dollar to remove currency volatility.
6.3.2 Direct Property
Individual investments in Direct Properties are an acceptable investment opportunity, whether it
is residential, retail or commercial. However, no property development schemes are to be entered
6.4 Australian Share Investments
The Fund may invest indirectly (via wholesale managed funds) in securities listed on the
Australian Stock Exchange or via directly held individual securities listed on a recognisable
exchange such as the Australian Stock Exchange.
The managed funds will be those investing predominately in the S&P/ ASX 300 (Top 300 stocks
by market capitalisation) and in terms of liquidity, funds will generally be made available within
a month. As the use of wholesale managed Australian Equity funds is a further means of
diversification, there are no specific restrictions on the market capitalisation limits through the
use of such investments.
Direct Investment should be limited to companies listed on the ASX with a market capitalisation
that places them in the top 200 of the All Ordinaries Index (or successor). Only a professional
stock broker or suitably qualified financial adviser can mange a portfolio of direct equities and
direct investments can be made outside of the ASX 200 as long as no exposures to these stocks
are over 3% of the total Australian Equities exposure.
Additionally, direct holdings may not exceed 70% of the Australian equities portfolio in total.
This is to ensure that at least 30% of the Australian equities exposure is focused on capturing the
market (passive investing).
6.5International Share Investments
The Fund may invest indirectly (via wholesale managed funds) in securities listed on
International Stock Exchanges. No direct foreign investments shall be made into international
companies other than those listed on the ASX.
This may also include investments in regional global share funds and/ or global emerging markets
funds (up to 15% of the international share component of the portfolio), and global small
company share funds (subject to a 20% limit of the international share component). It is also
acceptable to invest in countries and sectors as long as they are within the documented constraints
and via managed funds only.
Inline with the currency hedging policy described below, these wholesale managed funds can use
currency hedging to remove currency volatility, can remain fully unhedged or can use partial
Recommendations for managed funds are to be sourced from/ made by the Investment
6.6 Other Investments
6.6.1 Options and Futures
The Fund does not intend to invest directly in any futures, options or other derivative
investments. However, the Funds investment managers may use such futures and options
strategies from time to time for limited purposes.
Legitimate uses of derivatives by investment managers include hedging to protect the value of the
assets against any significant decline in investment markets, and as a means of gaining market
exposure while minimising transaction costs. However, the investment managers are not able to
use futures, options or other derivative instruments for speculative purposes.
6.6.2 Hedge Funds (Absolute Return Investing)
An alternative approach to the traditional methods of investing in different asset classes is the use
of hedge funds. The most popular version is these funds are referred to as “absolute return
Hedge funds have emerged to attempt to provide investors with a positive return in all market
conditions. Hedge funds can adopt a wide range of strategies to help achieve this absolute return.
The three broad categories of hedge funds strategies are;
• Relative Value Strategies
– Exploiting market inefficiencies between similar securities including arbitrage
• Event Driven Strategies
– Mergers and corporate restructures
• Opportunistic Strategies
– An active bet in the movement of a market or security e.g. short selling
The approach utilised by these managers typically involves a manager investing in similar asset
sectors to traditional managers but incorporating different skill based strategies such as those
referred to above.
There are a number of important key differences between traditional investment approaches and
hedge funds including;
• Hedge funds define risk in terms of loss of capital, whereas traditional active managers define risk
as deviation from a stated benchmark
• Hedge funds managers aim to deliver a total return unrelated to a benchmark or index (unrelated
to the direction of the market). Traditional active managers aim to deliver relative returns
(outperform a benchmark) and these returns may be negative if the benchmark is negative
• Hedge funds tend to have a greater use of derivatives as opposed to directly holding assets in a
• Hedge funds have different fee structures with a significant portion of fees attributable to
Whilst Hedge (or absolute return) funds can offer investment opportunities they also introduce
other risks for investors including;
• Manager Risk
• Lack of transparency
• Less liquidity
• Greater use of leverage
• Greater use of derivatives
From the risks shown above the most fundamental risk is the substantial dependence on the skill
of the manager to implement their strategy profitably and not diminish the capital. This is clearly
contrasted against strategies that aim to capture general movements in markets.
It is an accepted fact that unsophisticated investors have considerable difficulty in understanding
the complex strategies which often underlie the construction of hedge fund portfolios.
Furthermore, due to the range of additional risks, rigorous research and regular review are
The ability to accommodate these additional risks resides primarily with the major global
6.7 Currency Hedging
Currency hedging is not permitted as a stand alone investment strategy for the purposes of
speculation. However, where wholesale international equity funds are held, currency hedging is
permitted where the dominant purpose is to restrict currency volatility affecting their returns.
Wholesale managed funds are permitted to utilise a hedged, unhedged or partially hedged
With regard to international fixed interest and listed property investments, wholesale managed
funds are permitted to fully hedge currency exposure. This is usually implemented via forward
foreign currency contracts.
7.0 ETHICAL INVESTMENT CONSIDERATIONS
The Fund will not invest directly in companies whose core business is:
• Arms Production
In making investment decisions, the DIC will endeavour to adhere to this ethical criteria in all
cases. When shares are inherited any which do not comply with the ethical guidelines will not
necessarily be sold immediately but as soon as possible.
8. IRREGULAR INVESTMENT OPPORTUNITIES
Any investment plan should take into account legitimate methods of enhancing and improving
The Fund as a tax exempt vehicle is able to participate in various capital market transactions that
can assist in the enhancement of the portfolio returns.
Share Buy Back Arrangements
Specifically, the Fund is able to participate in various share buy back transactions as long as this
practice remains a viable and legal portfolio strategy. In the event of these transactions becoming
non-compliant with other areas of the investment guidelines, then this strategy should cease
Where beneficial, the Fund should attempt to participate in the share buy back programs only of
companies listed within the ASX 300 and as advised by the professional broker or qualified
financial adviser managing the investment portfolio.
Initial Public Offerings (IPO’s)
These offerings will be considered by the DIC on a case by case basis.
9. PERFORMANCE AND BENCHMARKING
The performance of the Fund’s portfolios will be reviewed by the Investment Consultant
• Ascertain the existence of any particular weakness in any manager
• Allow the Investment Consultant to regularly assess the ability of the managers to successfully
meet the Funds objectives
• Ensure that performance and investments remain inline with the Funds documented Investment
Policy Statement (IPS).
In addition, the investment consultant will assess the extent to which the investment objectives
are being achieved, on an annual basis.
The Investment consultant will report to the DIC every quarter.
The main objective of the Fund is to achieve a return of CPI plus 5% per annum over a rolling 5
year period. However, each of the individual asset classes will also be compared to specific
benchmarks as part of the performance criteria.
The benchmarks for individual asset class returns will be determined by the DIC.
Note that management fees should be taken into consideration when comparing fund performance
to the benchmark.
10. APPROVAL OF INVESTMENT TRANSACTIONS
Two properly authorised signatories must authorise any transaction in a pre-agreed manner.
11. PERIODIC REVIEW OF GUIDELINES
It is the intention of the Fund to review this IPS periodically as the investment landscape is
changing regularly. Following such reviews, the Fund in conjunction with the Investment
Consultant should amend the guidelines to reflect any changes in the philosophy or objectives. It
is anticipated that the IPS is reviewed at least annually.
Signed & Authorised:
Name & Position Date
Name & Position Date
Proposed Asset Allocations by Risk Profile showing tolerance to benchmark
Asset Class Conservative Moderately Balanced Assertive Aggressive
20-50% 15-40% 10-30% 0-20% 0-10%
40-70% 25-50% 15-30% 10-20% 0-10%
20-40% 10-30% 5-20% 5-15% 0-10%
0-20% 10-25% 15-30% 25-40% 30-50%
0-10% 5-15% 10-25% 15-30% 20-40%
0-10% 0-15% 0-20% 5-25% 10-30%
0-2% 0-3% 0-4% 0-5% 0-6%
Risk Profile – Typical Returns
Objective An emphasis on relative stability of returns over the short to
medium term with the potential for modest longer term growth
Horizon Generally shorter to medium term (2 to 4 years or more)
Historical returns* 1 year: (–9.0%) to 22.1% pa 7 years: 5.7% to 11.4% pa
Estimated long term return** 6.0% to 6.9% pa
Capital volatility Low to medium
Asset mix 65%–100% defensive assets and 0%–35% growth assets
Appeal Investors favouring security but who require some longer term
growth with a small appetite for volatility
Objective To obtain a balance of security, income and growth with security
and income ranking before growth in priority
Horizon Generally medium term (3 to 5 years or more)
Historical returns* 1 year: (–12.4%) to 27.2% pa 7 years: 5.0% to 13.7% pa
Estimated long term return** 6.5% to 7.3% pa
Capital volatility Medium
Asset mix 45%–65% defensive assets and 35%–55% growth assets
Appeal Investors still seeking security but balancing that with a
combination of income and moderate capital growth from a
Objective An emphasis on longer term growth using a combination of asset
classes to moderate volatility somewhat
Horizon Medium to longer term (a minimum of 4 years but preferably
Historical returns* 1 year: (–16.9%) to 33.0% pa 7 years: 3.6% to 15.7% pa
Estimated long term return** 7.0% to 8.0% pa
Capital volatility Medium to high
Asset mix 30%–45% defensive assets and 55%–70% growth assets
Appeal Investors seeking growth over the medium to longer term and with
no need to access a large part of their investment over that time,
while at the same time diversifying risk through investing in a
spread of asset classes
Objective A focus on long term growth with a modest income stream
Horizon Longer term (a minimum of 5 years but preferably longer)
Historical returns* 1 year: (–20.6%) to 38.4% pa 7 years: 2.4% to 17.3% pa
Estimated long term return** 7.7% to 8.3% pa
Capital volatility High
Asset mix 10%–30% defensive assets and 70%–90% growth assets
Appeal Investors with a long period before they need to access a large part of their
investment, who are prepared to accept a high level of volatility but
nonetheless want some modest diversification by exposure to lower
returning asset classes
Objective A focus on long term growth above all other considerations
Horizon Long term (a minimum of 7 years but preferably longer)
Historical returns* 1 year: (–25.1%) to 47.4% pa 7 years: 1.0% to 20.1% pa
Estimated long term return** 8.0% to 8.7% pa
Capital volatility Very high
Asset mix 0%–10% defensive assets and 90%–100% growth assets
Appeal Investors seeking to maximise growth, with a long period before
they need to access a large part of their investment and who are
prepared to accept a high level of volatility
* These estimates are based on historical returns and are provided for comparative and illustrative
purposes only. The figures show the potential volatility of the various portfolios.
** Note that these are estimates of the returns expected over the long term for the suggested
combinations of assets that make up the various portfolios. They are estimates only, are not
predictions and are in no way guaranteed and are provided for comparative and illustrative purposes
Standard & Poor’ Credit Rating Levels
A1+ Extremely strong capacity to pay
A1 Strong capacity to pay
A2 Satisfactory capacity to pay
A3 Adequate capacity to pay
AAA Extremely strong capacity to pay
AA Very strong capacity to pay
A Strong capacity to pay
BBB Adequate capacity to pay
Sub Investment Grade
BB+ Uncertainties or adverse conditions could lead to
BB inadequate capacity to pay
BB- Adverse conditions likely to impair capacity to pay
CCC Vulnerable to default
C High risk of default