All asset classes have different levels of risk and expected return. The key assets MTAA Super currently invests in include shares, fixed interest, cash, property and infrastructure.
These asset classes can be further broken down to include Australian and International shares, unlisted shares and private equity, Australian or international fixed interest and global floating rate credit, direct or indirect property investments, and domestic and international infrastructure.
Shares, also known as equities, represent ownership of a company. They generally provide returns as dividends (income) and offer the potential for profit (or loss) through changes in their price on the share market. In the long term, shares are expected to provide higher returns than cash, fixed interest or property, but there is a higher level of risk which can result in negative returns from time to time.
Infrastructure includes roads, airports, ports and other large-scale community projects and assets. Investment in infrastructure can take many forms, among them direct equity in a development or asset or a loan to a participant in a development. Infrastructure is a moderate to high risk investment that can produce strong returns when held to maturity.
Property includes residential real estate and industrial and commercial property (office buildings, factories and shopping centres). Property generates rental income and can also increase (or decrease) in value over time. It normally generates better returns than cash or fixed interest, but can be more volatile and is usually considered a moderate to high risk investment.
Private equity involves investment in private or unlisted companies. Private equity investment can be used to expand or develop a business. With care and thorough research, private equity can provide high returns, but with a higher level of risk.
Common forms of fixed interest securities are loans to government bodies and companies. These typically provide interest payments over the term of the security, as well as the return of the amount invested at the end of the security’s life. The security’s value fluctuates during its lifetime in response to a variety of factors, including changes in market interest rates. Fixed interest securities generally have a moderate level of risk and are expected to produce a moderate rate of return.
Floating rate securities are another form of fixed interest investments. These provide a variable rate of interest paid at a specified spread over a money market reference interest rate (for example the RBA cash rate).
MTAA Super’s investments in fixed interest securities may include government and credit securities of both a fixed and floating rate nature.
Alternatives credit are high-yield debt assets including infrequently traded debt securities (such as corporate bonds and loans) that exhibit greater credit risk and higher expected returns relative to sovereign government debt.
Cash is invested in term deposits, notice period accounts, bank bills, commercial paper and other money market instruments for short periods. Cash is one of the most stable investments because returns are among the most predictable, but it generally earns the lowest rate of return of the main asset classes over the long term.