3rd September 2008

Dear Investor,

Investment of superannuation

Following on from last week's Investment News we are continuing on the topic of superannuation.

Superannuation in itself is not an investment but more so a mechanism designed to provide benefits (money) for retirement. Through superannuation, people are able to save for their retirement.

Superannuation provides access to investment options that may not otherwise be available to investors, and provides a way for people to save for retirement in a tax-effective way.

For example, if a person holds shares in their own name or via their superannuation fund, the same dividend is paid and the value of the share goes up or down in the market exactly the same in both cases, it is just the tax implications that differ. Investors often confuse superannuation as an investment option as opposed to an investment vehicle.

Superannuation Investments are held on trust

Superannuation funds are held 'in trust' on behalf of all members of the fund. There are therefore 'trustees' who are responsible for the prudential management of their members' monies as well as the construction and implementation of investment strategies. Trustees have duties and obligations in overseeing the superannuation fund and are liable for breaches of trust obligations. Superannuation trustees are obliged to ensure that the members' superannuation funds are invested prudently with consideration for diversification and liquidity.

Superannuation is a long term investment

Superannuation, being savings for retirement, should be seen as a long term savings vehicle. Superannuation funds are offering more investment choice to allow members to move their funds between different asset classes or risk profiles as their personal situations change throughout their life. Trustees of superannuation funds are also aligning their investment strategies to this as most funds now try to retain their members right through their life cycle. This includes retirement, by offering their members pension funds without having to move their superannuation from one company to another and/or even in some cases sell down their investments and therefore making superannuation an even more tax effective strategy.


A diversification strategy is paramount to a superannuation fund. It is imperative for the protection of its members' funds. As you would have read over our past newsletters, diversification is key to mitigating risk and there can be several levels of diversification: investment asset class, fund manager, investment returns and many more. The same rules apply to trustees of superannuation funds and often they are responsible for managing billions of dollars.

Investment strategies

Trustees must give important consideration to the profiles of its members as this will influence the investment strategy they put in place. For example, an Industry Superannuation fund trustee may select an investment strategy whereby they offer members 'pre-packaged' options with a default option if a member does not select an investment. The default option is usually of a more conservative nature.

A retail fund usually offers an investment strategy that is not pre-packaged but lists many investment options. Members have the ability to select their investment mix having regard to their risk tolerance i.e. conservative, balanced, growth or high growth.

An investment 'platform' or 'Master Trust' will often offer the greatest investment choice ranging from shares, term deposits, managed funds, cash options and usually a choice of Fund Managers and bank products. They will also offer pre-packaged options.

Even with self-managed superannuation funds, the trustee of the fund must develop an investment strategy that is consistent with the requirements of the individual members.

Managing liquidity

The trustees must assess their fund's membership profile along with the superannuation fund's overall investment strategy. For example, if a superannuation fund attracts an older to nearing retirement membership the trustees are more likely to require a conservative or balanced strategy for capital protection and to meet its payout requirements as members retire and access their superannuation. A superannuation fund that has a younger demographic as its membership is more likely to require growth and high growth options as its investment strategy to assist its members in growing their savings.

Along with diversification, it is the responsibility of the trustee to ensure there is a reasonable amount of liquidity and this must be closely managed.

Remember, superannuation products are not an investment option but a vehicle that provides monetary benefits for your retirement. Therefore it is also important to remember as your superannuation account fluctuates with the movement of the market it is the underlying investments and not the vehicle itself that is responsible for that movement.

Best regards,
Chris Andrews


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Chris Andrews
Head of Funds Management

t  +61 3 8610 2811
e  candrews@latrobefinancial.com.au

Chris Andrews is the Head of Funds Management for the La Trobe Group and has responsibility for the La Trobe Australian Mortgage Fund.
Read full profile here.

La Trobe is one of Australia's leading independent specialist mortgage Financiers. Its business includes residential mortgages, commercial mortgages, and investment services operating one of Australia's largest Mortgage Funds under AFSL 222213. It employs over 115 staff and has raised over AUD$10Billion to assist over 100,000 customers since inception in 1952.

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