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Standard Risk Measure

In response to guidance from the Australian Prudential Regulation Authority (APRA), the Association of Superannuation Funds of Australia (ASFA) and the Financial Services Council (FSC) issued the Standard Risk Measure Guidance Paper for Trustees in July 2011. This sets guidelines around standardised labelling of investment risk, and prescribes the introduction of a Standard Risk Measure. Sunsuper has complied with the Standard Risk Measure Guidance Paper for Trustees by incorporating the Standard Risk Measure into the Sunsuper for life Investment guide and Product Disclosure Statements (PDSs) issued from 1 July 2016.

The Standard Risk Measure assigns a Risk Label from Very low to Very high, and a corresponding Risk Band from 1 to 7 for each option, based on the number of expected years of negative returns over any 20-year period.

While the Standard Risk Measures are not a complete assessment of risk, their purpose is to assist members and prospective members to compare each investment option, both within Sunsuper and across other superannuation funds.

Sunsuper’s calculation methodology

Sunsuper in conjunction with an external consultant has followed the Standard Risk Measure Guidance Paper for Trustees in determining a Risk Band and Risk Label for each investment option.

Sunsuper in conjunction with the consultant uses a statistical approach in calculating the return and risk characteristics of a portfolio of assets. This type of approach uses a set of assumptions about the return, volatility and correlations of different assets, combined with an assumption about their distribution, to calculate the portfolio level characteristics. These are calculated using a number of assumptions about how investment markets are forecast to perform, how much volatility there is likely to be and how different asset classes are related. These assumptions are not guaranteed.

The output is produced on the basis of the probability of a negative return in “x” years out of 20. The expected chance of loss is on a gross of tax basis excluding imputation credits, and is calculated gross of administration fees but net of investment management fees. A conservative approach to incorporating expectations for investment manager outperformance has been taken.

These are estimates only and are not guaranteed. Actual outcomes may differ significantly from the estimates. A technical description of the methodology can be provided upon request. The estimated number of years of negative returns over any 20-year period, Risk Label and Risk Band for Sunsuper’s 21 investment options are listed in the table on the following page. Risk Bands and Labels are also disclosed in the Sunsuper for life Investment guide (for each option), and in the PDS (for the default option). The Standard Risk Measures for Sunsuper’s investment options are reviewed annually, or more frequently in the event of a material change in underlying assumptions or asset allocations on which the calculations are based.

 Sunsuper investment option   

Estimated number of negative annual
returns over any 20-year period

Risk band  Risk label 
 Lifecycle Investment Strategy  Balanced Pool   3 to less than 4  5  Medium to high
   Retirement Pool  2 to less than 3  4  Medium
   Cash Pool  Less than 0.5  1  Very low
 Growth    4 to less than 6  6  High
 Balanced    3 to less than 4  5  Medium to high
 Retirement    2 to less than 3  4  Medium
 Conservative    1 to less than 2  3  Low to medium
 Balanced – Index    4 to less than 6  6  High
 Shares    4 to less than 6  6  High
 Australian Shares    6 or greater  7  Very high
 Australian Shares – Index    6 or greater  7  Very high
 International Shares (unhedged)    4 to less than 6  6  High
 International Shares (hedged)    4 to less than 6  6  High
 International Shares – Index (hedged)    6 or greater
 7  Very high
 International Shares – Index (unhedged)    4 to less than 6  6  High
 Emerging Market Shares    6 or greater  7  Very high
 Property    4 to less than 6  6  High
 Australian Property – Index    6 or greater  7  Very high
 Fixed Interest    2 to less than 3  4  Medium
 Fixed Interest - Index       2 to less than 3  4  Medium
 Cash    Less than 0.5  1  Very low
 Ethical, Environmental and Socially Responsible  Investments    3 to less than 4  5  Medium to high
 Capital Guaranteed    Less than 0.5  1  Very low
                                                                                                                                                                                                                                                                                                                                                                                                                             

 4 to less than 6
 4 to less than 6
 2 to less than 3