QSuper's investment strategy is based on a set of investment principles that are at the core of the investment process. They have been formed over time through a combination of investment theory, empirical evidence, and practice and experience. QSuper continually reviews our investment principles to ensure we harness the best strategies for returns.

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  • Industry research advocates strong governance as an essential success criterion for institutional investors
  • QSuper has formed an Investment Committee and supplemented the Trustees with external experts
  • Clear delegations have been set by the Board for the Investment Committee and management
  • External mangers are governed by investment management agreements and mandates which include provisions for managers to be replaced at short notice when necessary
  • Appropriate separation of duties is in place for risk, compliance, reporting, legal and tax management.

We recognise risk in multiple ways:

  • In QSuper Lifetime and potentially post-retirement products, we measure risk in relation to securing income streams and approximate measures of retirement adequacy (ALM).
  • In asset-only Diversified Investment Options, short-to-medium term volatility should be reduced and large negative returns over short periods (adverse volatility) minimised.

Risks need to be traded off in the endeavour to meet members objectives.

  • Drawn from empirical evidence which shows that reducing tax and fees produces a very high certainty-equivalent value add. However, the aim in managing these is to achieve high net risk-adjusted returns and not simple minimization.
  • Tax implications should be explicitly considered both at fund level and intra-asset class. Strategies which reflect tax value-add opportunities should be actively sought out.
  • The Australian regulatory framework requires fees to be reported separately from net returns. Members’ confidence can be enhanced if they see competitive fee levels.
  • ESG is defined as the environmental, social and governance factors (both risks and opportunities) that can influence the Fund meeting its long term investment objectives.
  • ESG risk factors present in many forms; the magnitude and potential impact of which vary and evolve. They are difficult to assess on pure financial terms.
  • QSuper recognises that managing assets in a sustainable manner will impact long term returns on investments and we engage in practices to monitor and influence these outcomes where reasonable to do so.
  • Engagement is preferable to divestment given QSuper’s investment philosophy and style, however in certain defined circumstances (e.g. ethical guidelines) divestment can be effective as a risk management tool.
  • For members who express an appetite to take an explicit ESG related approach to investing, QSuper has a stand-alone investment option which applies socially responsible investment criteria.
  • Drawn from investment theory and supported by historic empirical evidence from many asset classes and countries.
  • The observed volatility of asset prices is far higher than fundamentals of valuation can explain.
  • The implication is that if fund level risk is to be broadly stable it is axiomatic that asset allocations will need to vary.
  • This suggests that risk adjusted long term returns can potentially be improved through a process of disciplined dynamic asset allocation.
  • Drawn from investment theory, empirical evidence and research from a variety of investment managers and consultants.
  • Traditional asset class groupings are very broad and can mask very different risk and return characteristics within sub-asset class groupings of securities.
  • Equities, bonds and other asset classes should not be routinely classified as “growth” or “defensive” assets but in most cases can be transformed or selectively constructed to perform both roles.
  • The challenge is to estimate the presence of risk factors in assets.
  • Drawn from investment theory, empirical evidence and research from a variety of investment managers and consultants.
  • Risk can be reduced most effectively, and without sacrificing return, by combining asset classes with similar expected risk and return. The risk reduction relies on uncorrelated return series and this is a critical part of strategy development.
  • This contrasts with reducing risk by combining high risk assets with low risk assets. While risk is reduced so is expected return and large allocations of the low risk asset are required to make material reductions to risk which makes the strategy inefficient.
  • Based on historic empirical evidence across many countries in combination with principle 2
  • This needs to be balanced against the fact that:
    • Objectives are relative to Australian inflation measures
    • Australian assets have natural advantages in achieving the Fund’s objectives.
  • Based on empirical evidence across many countries and the recognition that additional bond issuance by countries and companies results in higher exposures in cap-weighted indices but also deteriorating credit quality
  • Bond portfolios are invested without specific reference to cap-weighted benchmarks.
  • Based on theoretical fundamentals and empirical evidence
  • Implications are:
    • Sovereign risk dominates our fixed income assets because it is a true diversifier of equity risk
    • Now that equity risk is less dominating in the portfolios we have the capacity to increase credit exposure which is very highly correlated to equities
    • Inflation is a viable exposure we may hold.
  • Based on a mix of investment theory and empirical evidence
  • We access illiquidity predominantly in infrastructure, real estate and private equity but also in certain alternative exposures as well. Not all MIC options hold these because some have comparatively short time horizons
  • Overall liquidity is closely managed at MIC Option level to ensure we can meet our obligations.

This is based on a mix of investment theory and empirical evidence.

In periods of low or negative hedging returns and stretched asset valuations, developed market (DM) FX exposure may give some cost-effective downside protection or improve risk-adjusted returns versus a fully-hedged portfolio.

In some markets, currencies may exhibit risk premiums/return potential, and have different correlation and transaction cost considerations that warrant leaving exposure unhedged on a case-by-case basis.

  • Assets can be managed both internally and externally
  • Any decisions are to be based strictly on merit in terms of the benefits for QSuper members determined by:
    • Expertise
    • Value in diversity of views offered
    • Cost/benefit assessment.
  • Empirical evidence suggests alpha is not reliable in listed asset classes. It can be observed selectively but consultants have difficulty reliably selecting managers
  • It is not possible to disentangle alpha from beta in unlisted assets, but we acknowledge the potential for alpha is much higher due to the presence of various factors such as proprietary information, closed bidding and illiquidity
  • Implications are:
    • Minimal alpha seeking in listed markets
    • Alpha-seeking mandates in private market asset classes with significant idiosyncratic risk; with correspondingly high emphasis on strong ownership and fee terms in these mandates
    • Beta is main focus of targeting our return and risk objectives.

Need help?

If you need help clarifying the meaning of some of these finance terms, visit the ASFA superannuation dictionary1.

1. The ASFA superannuation dictionary is an external tool provided and maintained by the Association of Superannuation Funds of Australia.