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The New School of Super podcast series

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Join Sunsuper’s Dream Team Chief Economist Brian Parker and Head of Advice and Retirement Anne Fuchs in our podcast series as they discuss money matters, your super and the things that could affect your financial dreams now, and in the future.

The Sunsuper Dream Team

Anne Fuchs is the Head of Advice and Retirement at Sunsuper. She has worked in the financial advice industry for more than 20 years, and passionately believes great financial advice can change people’s lives. Prior to joining Sunsuper in February 2015, Anne was the Chief Commercial Officer at the Association of Financial Advisers where she was responsible for income generation and servicing of their commercial stakeholders – members, licensees & corporate partners.

Brian Parker was appointed to the role of Sunsuper’s Chief Economist in 2015. In a career spanning more than 25 years, Brian has worked in a series of economics, portfolio management and communication roles with a range of organisations including Rothschild, JP Morgan, Citigroup, MLC and the Reserve Bank of Australia. Brian has an honours degree in economics from the University of Queensland, where he also taught macroeconomics. Additionally, he is a Charted Financial Analyst.

Episode 1

Listed vs unlisted assets

For our first-ever episode, Sunsuper’s Dream Team breaks down the difference between listed and unlisted assets and why Sunsuper members should be extra-interested when they take off on a flight from Brisbane Airport.

Voice-over: Welcome to the New School of Super, a fresh look at money matters, your super, and the things that could affect your financial dreams now and in future with Sunsuper’s Chief Economist, Brian Parker and Head of Advice and Retail Distribution, Anne Fuchs.

Anne: Hello and thank you for listening. Welcome to the new school of super – Sunsuper’s podcast covering all things money, investments, superannuation and most importantly, how to help you reach your retirement dreams. My name's Anne Fuchs and I head up financial advice at Sunsuper and I'm sitting here today with someone who’s pretty special, the Chief Economist from Sunsuper. His name is Brian Parker and what this man doesn't know about investment markets isn't with knowing. Brian it's so great to see you.

Brian: Thanks Anne, it’s good to be here.

Anne: So today we're talking about unlisted assets versus listed assets and you know, helping our listeners understand what this means and why it's important to their superannuation and retirement savings. But, I think before we start doing that the people upstairs in compliance need us to say something, don’t they?

Brian: Yeah, they do. I think they want me to say that this is general information only and that we're not providing personal advice, and that if what we say today does actually spark an interest and does lead you to think that you need to do something, to change something about the way you invest your money, either in super, or outside of super, then

do get some personal financial advice. Because as you say Anne, you know very good personal financial advice can change people's lives.

Anne: Thank you Brian. So, we're talking about listed and unlisted assets. Listed assets I think are pretty well understood, aren’t they Brian? They’re just the stock exchange simply. How would you describe it?

Brian: Yeah, I think that's right Anne. I mean I think a lot of people can understand that their superannuation fund invests at least a portion of their assets, perhaps a large portion of their assets in shares. In other words, you’re buying a piece of the business and that piece of the business, that share is actively traded, day to day on world share markets. And so, the value of that asset on any given day, in fact any minute of the day, can go up or down quite dramatically.

Anne: And highly liquid, so you can get your money at any given time.

Brian: Absolutely, if you go online or get on the phone and I can basically sell my shares in BHP or Commonwealth Bank. Literally within days.

Anne: Okay and so an unlisted asset means what?

Brian: Well it means I can’t actually get on the phone or get online and actually sell my equity in an unlisted asset immediately. I’m effectively locking money up for a period of time. So, in other words, the value of these assets is not determined day to day in world markets. The value these assets is priced periodically by independent valuers.

Anne: Okay, so if that's still a bit of investment gobbledy-goop.

Brian: Oh, thanks for that.

Anne: Let's break it down even more. So, bring it to life. Like what does that mean? What are you talking about?

Brian: That’s a very good question. It's interesting, I think a lot of people, when they look at their super fund, apart from saying I think there's some shares in there, I think that a lot of people actually don't really have a lot of understanding about where their money is invested. When we talk about unlisted assets, we're talking about primarily unlisted property assets, so direct property. We’re talking about infrastructure assets, such as airports and ports for example, or what we call private equity. So, in other words, we’re buying shares in businesses, but those shares are not traded day to day, on world markets, they’re unlisted businesses.

Anne: It’s still too abstract. How would I describe it to my mom?

Brian: Yeah absolutely, in words, I’m buying equity. I’m taking a stake in an asset say like Brisbane Airport, or if I look overseas, I'm taking a stake in the electricity distribution network in Finland, or I’m taking a stake in the gas distribution network in the Czech Republic. So, in other words, whenever anybody lands or takes off from Brisbane Airport, anyone in Finland turns on a light switch, anyone in the Czech Republic who turns on their gas stove, we will make money.

Anne: So, is this just something that Sunsuper does or do other super funds do it? How does that work?

Brian: Yeah look, a lot of the profit for member super funds and, in fact, I’d probably say most of the profit from member super funds in Australia, and indeed a lot of the big sovereign wealth funds and pension funds overseas, do invest a substantial part of their portfolio in unlisted assets. So, it’s not just a Sunsuper thing. Why we are able to do it, is a more interesting question perhaps. We're able to do it because our members are overwhelmingly young. They’re overwhelmingly investing in compulsory superannuation, which means that our members are not going to be drawing down on the fund, on average, anytime soon.Which means we can afford to worry less about day to day liquidity, than perhaps some of our competitors can.

Anne: So, what if you were describing it to some of our members or you know the listeners here today, what is the main big draw card about this asset class, the big why, behind why we do it? Why is it good for members?

Brian: Very, very simply – higher long-term returns. In particular, higher long-term real or after inflation returns, that are a smoother ride along the way.

Anne: So, does that mean when you say a smoother ride along the way, does that mean it doesn't follow what the stock market does? And that I lose less money? Is that what you're saying?

Brian: It means that the value of the assets we hold, by virtue of the fact that they not traded every minute of the day, it means the value doesn't move around dramatically, so you end up with the returns generated by Sunsuper or a similar profit from a member fund, being somewhat less volatile than a lot of other funds.

Anne: But the downside, risk side of it, does it help with managing that downside risk?

Brian: It does somewhat, yes. Because what you tend to find is during a major share market down turn, especially if that share market downturn is really prolonged, eventually the value of your unlisted assets, is going to be affected by that. But, what we find is the jury major share market downturns, the value of unlisted assets, doesn't decline anywhere near as much as share prices do.

Anne: So, what do you, as the investment managers, worry about? What can go wrong? Because it sounds just fantastic, but nothing's ever perfect. So, what do you worry about? What should we be looking out for to protect our members money?

Brian: Key things: One, is doing a due diligence on these assets. So, we make sure that we have really, really good managers, that are managing these assets day to day. Two, that we do our own due diligence, before we put a single dollar of members money into an asset. We also make sure that we and never, never exposed heavily to one single asset. We'd make sure that we build very well diversified portfolios of these assets and let me give you an example. One of our major assets, if not our largest single asset, is our shareholding in Brisbane Airport. That's a very, very major investment and a very major airport. The value of our equity in Brisbane Airport accounts for less than one percent of the fund. So we're talking about investing in literally a couple of dozen different infrastructure assets around the world. We're talking about in investing in perhaps about a hundred to two hundred individual property assets around the world. And literally thousands of unlisted businesses as part of our private equity folio.

Anne: So, what I'm fascinated by and I guess this is my last question, is how does a fund, look Sunsuper is an iconic Queensland brand, it's for a national fund, one point three million members around the country and all of that, and yes for a big player in Australia. However, how in earth does a fund like ours, get to buy the gas that goes into the Czech Republic, or turning on the electricity network in Finland? How do they even know we have the money to invest in these types of things?

Brian: That’s a really good question. It means that you need to burn a lot of shoe leather and you need to spend a lot of time in international markets talking to the key players and making sure you have really good investment contacts all around the world. So that when these opportunities do arise, you’re well placed to capitalise on them. We also have an advantage, in the sense that we can move quite quickly. The way Sunsuper is governed, a good deal of day to day investment responsibility, is delegated to the investment team, the internal team of professional investors. Which means that if an investment opportunity comes up to invest in a particular infrastructure asset, we can move quickly, and we can actually make decisions, perhaps more efficiently and faster than many of our competitors. That makes us a reliable investment partner for a range of global investment houses.

Anne: So Brian, before we finish up, for our listeners, one final tip around this particular asset class. How would members know how to access this investment class? How to find out whether their money is invested in unlisted assets?

Brian: That's a good question, Anne. If you look at Sunsuper’s range of diversified investment options, the growth option, the balanced option, retirement and conservative option, all of those options have an allocation to unlisted assets. I should also point out though, it’s important to realise that we're not talking about having eighty or ninety percent of the fund invested in these assets. We're talking about a third of the fund actually invested in alternative assets and unlisted assets in particular. We do worry about liquidity, we need to make sure we have the lion’s share of the portfolio invested in liquid assets. So all of our diversified options have exposure to unlisted assets. For those members that want a particular discrete exposure, we also offer diversified alternatives option and we also offer a property option. That diversified alternatives option, it's been on the market now for a few months. That consists of a small amount of cash, but it also consists of our hedge fund alternative investment strategies and our infrastructure and private equity strategy. Now, our property option includes an allocation to liquid property or listed property, but it also includes a substantial allocation to Sunsuper’s unlisted property portfolio. So our members can access it via our diversified options, but they can also access our diversified alternatives directly.

Anne: So, I guess the advice is, talk to your super fund. If you’re a Sunsuper member call us. If you're a member of another profit for member super fund and you're really interested in this asset class, have a look online, give them a call. This incredibly fascinating asset class, I really love it and I've loved listening to you speak about it today Brian. Thanks so much.

Brian: Thanks Anne for you time.

Voice-over: This has been The New School of Super. For information and inspiration to help you plan your future, manage you super and enjoy your retirement, visit sunsuper.com.au/thedreamproject. Or if you’ve got a superannuation or investment question, you’d like Brian and Anne to discuss, then get in touch at the schoolofsuper.com, for it to feature in one The New School of Super podcasts.

Episode 2

Understand your investment options

In this episode, Sunsuper’s Dream Team explains the broad range of investment options Sunsuper offers members, including diversified and single asset class, and active versus passive options, and what you should consider in choosing the right investment strategy for you.

Voice-over: Welcome to the New School of Super, a fresh look at money matters, your super, and the things that could affect your financial dreams now and in future with Sunsuper’s Chief Economist, Brian Parker and Head of Advice and Retail Distribution, Anne Fuchs.

Anne: Hello and thanks for listening. Welcome to the New School of Super, Sunsuper’s podcast covering all things investment, money, superannuation and most importantly, making sure you reach your retirement dreams. My name's Anne Fuchs and I head up advice at Sunsuper for our 1.3 million members and we're all about making sure our members make the most of what they have, so that they can live the life that they want. Now sitting opposite me is a pretty special man, who's been around a very long time, though he does not look it. He knows everything about investment markets and the economy, he's our Chief Economist and his name is Brian Parker. Brian, nice to see you today.

Brian: Thanks Anne and what a lovely introduction.

Anne: So, we’re here to talk today, about all things investing and what really is the right investment for you. There's so many products out there, how do you decide which one is the right one for you? So Brian, before we get started and you share your pearls of wisdom, what do those people upstairs need us to say, those compliance people upstairs.

Brian: Anne, they need us to inform the listeners, that this is general information only, it doesn't represent personal financial advice, it doesn't take into account your particular personal circumstances. But if something we say sparks an interest, it sparks something in you, which says I need to make change, we strongly recommend that you seek personal financial advice.

Anne: And great financial advice, wonderful financial advice, can profoundly change lives for the better.

Brian: Indeed.

Anne: So, if you're sitting here today, as a listener and wondering how on earth do you possibly pick the right investments for you, you’re listening to the right session, because we’re going to be unpacking all the different options available within superfund world and I think my one observation before we get started, Brian, is the one thing I've learnt, after twenty years of being in superannuation financial advice, is that members always remember if you've lost them money. They never remember as much if you've made some money. So really this is the most important decision they make around their retirement savings. So, I think a really good place to start, is single class assets versus diversified options, and that is for the ordinary member, I think a bit of jargon. We need to break this down, diversified single asset. What does that mean Brian?

Brian: Okay, a diversified option basically means that if I invest in a diversified option, I’m letting my super fund basically spread my assets across a range of different asset classes. Whether it be shares, cash, or bonds, or property, or infrastructure. Whatever, but it's basically letting the superfund do the work. They spread the assets across a diversified portfolio of assets for me, with a single asset class option, I’m making a decision to put my money into one particular asset class. Be it shares or bonds, or whatever. So, that's really the difference. It’s whether, I suppose the best way to summarise it is, do I want the superfund to do the work, or do I want to do the work?

Anne: So, if I can ask a silly question, why is diversification important? I mean Australia has a great economy, why would I not just put all of my money in Australia shares? You know, there’s a lot of craziness overseas, geopolitical risk. You know, maybe it’s safer just to put it all in Australia?

Brian: It’s really a good question and you think about the way Australian investors behave, we tend to actually favour the home front, a lot more than counterparts overseas. We tend to have what investors call a home bias and that's kind of unusual, given that we are one of the smaller economies of the world. You know, the Australian economy is only a few percent of global GDP. Our share market is only a few percent of global market value if you like. So, most of the investment opportunities, most of the universe of investment opportunities are beyond our shores. You raise diversification, there's an old adage that you shouldn’t put all your eggs in one basket and that's really what it comes down to. It’s that yeah, the Australian economic story is relatively solid, but I still don't want to put all my eggs into a basket labelled Australia. I want to try and pick the best universe of investment opportunities I can find, which means inevitably, I’m going to have to have some global exposure.

Anne: So why would somebody pick a diversified option, so I’m guessing that's a balanced option?

Brian: Well it could be a balanced option in other words, but there's a range of different diversified options that super funds offer. In the case of Sunsuper, we offer a conservative option which is, again, designed for more cautious investors. We offer our retirement, a balanced and then a growth option for those investors that are prepared to take more risks in search of higher returns.

Anne: So what does that mean it does that mean in terms of the exposure to these riskier assets of the further you go up the spectrum from conservative to growth the more exposed you are, and if you're doing that what's the stuff you need to be worried about? What should you be thinking about if you going to make that decision?

Brian: That’s a really good point, and in fact it's a crucial point. I call it the sleep at night test. If you're doing something with money, anything at all, whether it's your super, your mortgage, any other investments you’re making. If you're doing something with money which is causing you to lose more than about five minutes of sleep at night, it means you’re probably taking too much risk and you’re doing the wrong thing. Sleeping at night can never be overrated. Why would I want to take high risk? I take high risks because I’m prepared to do that because I believe I’ll get higher long term returns. If, in search of those higher returns, I’m losing sleep at night, well something's got to give. Half the battle with the deciding where to put your money is working out what kind of investor you really are. What investment returns do you need in order to achieve your retirement dreams. What risk are you prepared to take in search of those dreams. And understand that that there's often a trade off.

Anne: So, the sophisticated investor would have heard of this term of alpha, which is the you know out performance, and there's a lot of talk around, certainly in financial advice circles, about just how expensive it is to invest these days with fees and everything else and try to find that great return that you were talking about and where is the alpha and there's a lot of financial advisors out there that are a big believer in passive investments because it's all about keeping fees low and that's where they believe they can find alpha. But Brian, you’re the Chief Economist, what's your expert opinion on this concept of passive investing versus active investing.

Brian: Look, let’s start by defining some terms, and you raised the point about active versus passive investing. If I'm a passive investor, what I’m essentially trying to do is to replicate the performance of a particular market index or benchmark. So let's take Australian shares as an example. Let's say I just don't believe that there are people out there who can do better than the market, so I'm going to give my money to an investment manager who’ll basically give me a return which replicates the return of say these S&P ASX 300 index, and they'll do that for a very small fee. On the other hand, what if I believe there are managers out there who are genuinely good at what they do, who can actually add value over and above the performance of the index. Now I know that's going to cost more but if I could be convinced, if I could be really confident that those managers can deliver enough outperformance to justify their fee, then I’ll invest in an active manager.

Anne: Ok, and that out performance is that alpha that I was mentioning earlier.

Brian: Correct, exactly. So if you deliver alpha you deliver a certain amount of outperformance over and above a particular market benchmark.

Anne: So we've spoken about passive, active, single asset classes, diversified – it's pretty overwhelming. How would you possibly begin to decide what is the right option for you.

Brian: Look, that's a really good question and it is hard. At Sunsuper, for example, we offer twenty different investment options. We’ve deliberately kept the size of our investment menu relatively small. What we found from a lot of the academic literature on what we call behavioural finance, is that if you give people too much choice people just find it overwhelming so what we're trying to do is provide our members with a nice range of options which will enable them to build a diversified strategy that will suit their particular needs, and what we also do is make sure that we provide our members with a range of both active options but also passive options so that they can choose whether their prepared to pay a higher fee in search of higher returns or not. There are certain asset classes also where we don't offer an active option and that's really come down to two things. One is demand and the other is our view of value for money. If we have an asset class where we don't believe that investment managers can deliver reliable outperformance to justify their fee, then we think members are best going passive and so we only offer a passive option in those particular asset classes.

Anne: So I still think that it's incredibly confusing. As much as you're an extraordinary communicator, Brian, I still think it's incredibly confusing and for the ordinary person they think it's too hard, I'm just going to put my superannuation statement in the bin every year that it comes in because I would rather stick my fingers in my ears, close my eyes and sing ‘la la la’. So how do we make sure as investment professionals we’re helping those members.

Brian: Well that's a really good question and if you think about it most of our members, and I suspect most of pretty much every super fund’s members are what we call default members, that they have chosen or have just literally defaulted into their particular super funds My Super default option, and that means it's really really important that your super fund constructs a default option that works for the majority of those members. And so at Sunsuper we've gone for what we call Sunsuper for life, it's what we call a lifecycle option and we think it's quite unique in the Australian market. Up until the age of 55 investors in a lifecycle option will basically be invested in our balanced option, in other words they will have about 70% of their portfolio invested in what we call growth assets, and that means somewhat higher risk but also a higher returning assets such as shares. At the age of 55, on the day of the 55th birthday the system starts to crank into action. Over the next ten years every month we will very very gradually reduce our members’ exposure to growth assets such as shares, and we’ll do it in 120 discrete monthly steps so that by the time our member in the default option reaches the age of 65 they'll no longer be invested in balance. They won't be anywhere near as exposed to share markets, they’ll actually have 10% of the portfolio in cash and they'll have the other 90% of the portfolio invested in what we call that our retirement option. What is averages out to is that you'll end up with about 45% of your portfolio in growth assets. Why do we do this? We do this partly because we can. We have the administration systems to allow us to do this for members but also and more importantly we want to make sure that our members are not going to be as exposed to a major market downturn either when they’re about to retire or just after they retire. Because if that happens and you're heavily exposed to the stock market, that can really put a serious dent in your retirement plan.

Anne: Certainly I know Brian, I couldn't agree more. In 2008, you know, a number of people that were too heavily exposed to stock markets and we're planning on retiring and then all of a sudden 40% of their portfolio vanished overnight.

Brian: Exactly, and they drawing down on that portfolio, they’re drawing down on a pie that is shrinking.

Anne: Well they had to work longer and then that causes other impacts, you know, whatever else, and I think this is such a great feature for those people that choose just to leave it to the investment professionals. So Brian, we've had a really good natter today haven’t we?

Brian: We indeed, we always do, Anne.

Anne: We do indeed. Well thanks again. We'll see you next time.

Brian: Thanks Anne.

Voice-over: This has been The New School of Super. For information and inspiration to help you plan your future, manage you super and enjoy your retirement, visit sunsuper.com.au/thedreamproject. Or if you’ve got a superannuation or investment question, you’d like Brian and Anne to discuss, then get in touch at the schoolofsuper.com, for it to feature in one The New School of Super podcasts.

Episode 3

The world economic wrap

We’re living in strange and interesting times, but what does it all mean for you and your super? Sunsuper’s Dream Team takes a look at economic growth since the GFC, how current geo-political and other events are shaping the world economy, and what it all might mean for your super investment.

Voice-over: Welcome to the New School of Super, a fresh look at money matters, your super, and the things that could affect your financial dreams now and in future with Sunsuper’s Chief Economist, Brian Parker and Head of Advice and Retail Distribution, Anne Fuchs.

Anne: Hello and thanks for listening. Welcome to the New School of Super – Sunsuper’s podcast covering all things investment markets, money, and you know that thing that helps you achieve your retirement dreams – superannuation. My name's Anne Fuchs and I head up financial advice at Sunsuper and sitting opposite me is the Chief Economist of Sunsuper who knows everything when it comes to the economy and investments. Brian Parker, it's so wonderful to see you today.

Brian: Thanks Anne, good to be here.

Anne: So Brian, we’re going to be looking at the world and the economy and how it impacts members’ money, but before we start having a bit of a natter about that, the people in compliance upstairs want us to say something don’t they?

Brian: Yes, they do, Anne. Every time. This is just general advice – but if what we say prompts you to think about taking some action with the way you’re investing money either within your super or outside of it, then please seek personal advice.

Anne: Great financial advice can change things for the better. That’s my little infomercial in this podcast today. So, Brian, we’re living through extraordinary times, I think about 2008 and they were dark, dark, days but it seems like a lifetime ago and we’ve experienced this extraordinary growth. What’s happened?

Brian: It’s a really good question. And I remember 2008 and early 2009 well, and back in early 2009, let’s make no mistake about this. We really were standing on the edge of financial abyss. We really were on the edge of Great Depression part 2. The world financial system was going into meltdown and policy makers at that point seemed to be clueless. However, they did actually take steps which not just brought us one or two steps back from the abyss, but many steps back from the abyss. You know, just when you think things couldn’t get any worse, they don’t, they actually get better. And it’s worth remembering that if you look at the history of these things, every crisis, every downturn, every bare market, every recession bar none comes to an end without exception. At the end of the day, life and the economy and business goes on – the only uncertainty is the timing. And clearly since the end of that time, we have seen some very, very strong returns from world share markets in particular and that’s really helped propel superannuation fund returns over the past 5 to 7 years.

Anne: So what have been the themes in terms of those bright pockets of growth, where I’ve got my superannuation statement and I’ve seen year upon year is growing and growing, what are the themes underlying that? What are the sectors, what are the countries? Where are those bright pockets?

Brian: Let’s talk more broadly. Back then, if you started your investment journey in February 2009, you were starting from a point where global share markets looked unambiguously cheap. Where there was so much bad news, not just in the headlines, but so much bad news factored into the price you paid for shares here in Australia and all around the world. And a lot of the future returns you generate from any asset you buy is really determined from how much you pay for it upfront. And if you overpay for an asset, any asset, the future returns are almost by definition going to be lousy. But if you buy cheap assets that deliver you a reasonable income then your future returns are probably going to be pretty good. and that was one of the overarching lessons, I think, in February 2009, that there was so much bad news factored into share prices already. In addition, a lot of the steps that policy makers took during 2008 and early 2009, both the world’s major central banks, but also governments, actually did bare fruit. They did actually help drive a recovery in the world economy. That recovery helped drive a recovery in things like employment and corporate profits and share prices, and that really helped underpin very good returns over the last 5 to 7 years.

Anne: The growth in particular, if I can ping you, and say looking at the emerging markets versus developed countries, the European Union, the USA versus Brasil or China, how has that played out over the last 5 years and are you game enough to make a prediction about the next 5 years?

Brian: Look, a lot of what I’m about to say, it really does depend on where markets have gotten to today. If I look at valuations, if I look at what I am being asked to pay to buy assets in a range of markets, in particular to buy shares in major world share markets, there are very few bargains to be had. Back in early 2009, there were plenty of bargains to be had. You know, we were in crisis and so there were plenty of good quality assets, good quality businesses trading at very, very cheap prices. And so, when prices return to what you might call fair value, and in many cases beyond fair value, you made a great return. Today, if I was starting from scratch and putting money to work today, I’d look around and say well, where are the bargains? And there are not many out there. Because past returns have been so strong so it’s very, very hard to buy quality assets at a genuinely cheap price. Now what does that mean? It means that overall, future returns are probably going to be lower than the returns we’ve seen from share markets in general and super funds in particular in the last 5 to 7 years. And you mentioned emerging markets.

Anne: I was going to say I wasn’t letting you run away

Brian: You thought I was going to avoid that, no. Look, emerging markets are interesting. If I look at the rate of growth in emerging markets as a group, so these are markets in Asia, in Latin America, in Eastern Europe, and parts of Africa and the Middle East, generally speaking these economies have grown faster than economies in the developed world. And that’s what you’d expect to see because they have more upside, I mean, they are developing, so you’d expect them to grow faster. But another lesson we’ve learned from a very long span of history is that just because an economy is doing well does not mean that the share markets will do well. There’s not a lot of linkage between the performance of an economy perse, and the performance of their share market. Now, for most of the last 6 or 7 years emerging share markets have done alright, but they’ve tended to actually lag the performance of the major developed markets, in particular the United States. That’s changed in the last 12 months. In the last 12 months, emerging share markets have performed very, very strongly. In fact, if we were recording this podcast about a year to a year and a half ago, and if you asked me, where do you see value, where do you see opportunities, I would say look, you know what, emerging share markets look to be one of the few places that offer real value. In other words, where I could buy quality assets at cheap prices. The trouble is, that was about 30% ago, because that’s the kind of returns we’ve seen from these markets. So, even there it’s hard to find value.

Anne: So Brian, you said that there might be some grey clouds out there on the horizon. As a super fund, that’s incredibly important that we manage that, worry about that, and protect our members from those grey clouds. What are we doing?

Brian: Look, that’s a really good question. Let me rephrase your question a little bit if I may.

Anne: Yes.

Brian: Where the hell are returns going to come from? If you look at our product disclosure statements, you know, we tell our members that over the longer term we expect to deliver returns that are CPI plus 3 and a half or CPI plus 4 depending on the particular investment option. What assets are going to deliver those sort of returns, or at least, where can we be most confident of achieving the kind of returns that our members need to fulfil their retirement dreams.

Anne: But also where are we avoiding as well.

Brian: Well partly that too. Firstly, where are we avoiding? We’re tending to avoid, at the moment, sovereign government bonds in particular because if you look at the level of interest rates around the world, you look at the level of bond yields around the world. In other words, future returns from fixed income are lively to be quite low. So we actually tend to have a lower allocation to those assets to many of our competitors. What are we favouring? I mean, I suppose if I go back to my question before, where can we be most confident of generating the return members need? Look, there’s some chance the share markets will still do ok. I’m not saying that the share markets are going to fall into a heap tomorrow, I’m simply saying that future returns are going to be lower, but I need to do what I can and Sunsuper needs to do what it can to maximise the chances our members have of living their retirement dreams – and that means, where can we get the most reliable returns? And the short answer is, it’s in the alternative asset space. It’s investing outside of traditional assets like shares, and by that I mean carefully selected hedge funds or absolute care orientated strategies, but also unlisted asserts. Things like direct property, infrastructure, private equity. We’re still seeing opportunities coming across the desk every week. We’re still seeing deal flow come into our office where we do the math and say yes, this investment is capable of delivering more than adequate returns to justify the risks involved and justify the costs incurred. And more importantly the returns that members actually need to meet their objectives, but I must say that even the returns from those assets classes in the clast 5 to 7 years have been very, very strong, which means it’s very hard to find bargains even in that space. So, future returns there, while still very very attractive, especially when I compare it to the returns from traditional markets like shares. But, future returns from there have also come down. If I looked at say, an infrastructure deal or a property deal 5 years ago and if I did the math it might have said I can get 15% per annum out of this. Well if I looked at exactly the same deal today I might do the math and come up with a return of 9%. Now, I’ll still take 9% every day of the week, it’s just that 9% is not 15. Even in that space we’ve seen returns come down because a lot of money has forced up the price of these assets.

Anne: But I think that there’s this other thing that we haven’t spoken about, and I know we don’t have much time Brian, but I think we’ve got to say the word. It starts with ‘T’.

Brian: And it ends in ‘rump’.

Anne: Yes, Trump. But there are a lot of investors, where it’s just the sheer…

Brian: The unpredictability.

Anne: Yeah, unpredictability and one minute he’s meeting with Mr rocket man, and then he’s not. And it makes people very nervous. And I wondered what is Sunsuper doing to manage that risk?

Brian: Let me take it more broadly. Geo-political risk, if I can use that kind of term, is elevated and it’s going to stay elevated. Geo-political developments are going to remain a source of volatility for markets. But if you think about a longer span of history, geo-politics has always been a source of uncertainty for markets. Trump is just the latest manifestation of it. But I think it’s important to realise that regardless of what happens in the Whitehouse, regardless of what happens in North Korea, or in Italy or in the Middles East, it’s a very uncertain and volatile world. There’s lots of awful stuff happening out there, but I have to say there almost always is. And yet, life and business and the economy goes on. From Sunsuper’s perspective we take the view that, yes, this is a source of volatility, but regardless of that, people are still going to land and take off at Brisbane Airport and we will make money. A whole range of companies listed on the stock market will still make money by meeting our everyday needs as consumers and we will benefit from them making money. People in Finland will still need to turn on an electricity switch to light their homes and we will make money. People will still, in the Czech Republic need to use gas to cook their evening meal on their stove. It’s about investing in a wide range of assets which generate income that we can pass on to members. That doesn’t change regardless of who is in the Whitehouse.

Anne: Ok, so Brian. Final question before we wrap up. China and Australia and the impact China has on our economy, and the impact that China as a country has on our portfolio of investments. Any thoughts? Any advice for our members? Because I know certainly lots of people worry about that.

Brian: Look I think that the worry is real. I mean, China will remain a source of uncertainty and China’s emergence as an economy has been an unambiguous positive for the Australian economy, for the world economy, for global trade and for the hundreds of millions of Chinese that have been lifted out of poverty. But that doesn’t mean that China is not going to be a source of uncertainty, both geo-political and economic. It’s fair to say that the Chinese authorities, certainly in the region, have not been behaving terribly well. And I don’t think that’s a terribly controversial view. And so China will remain a source of uncertainty, but it’s just one of many sources of uncertainty. Now what do you do about it as an investor? It means that an investor, I certainly don’t want to put all my eggs into one basket labelled ‘China’ and I certainly don’t want to put all my eggs into a basket labelled ‘Australia’, because the Australian market and the Australian economy, yes, is quite heavily dependent on the performance of China among other things. I just want to make sure that our best defence against an uncertain world is to build portfolios that are as widely diversified as possible, and that’s exactly what we do.

Anne: Brian, I think for our listeners today what we’ve spoken about, it’s so important that maybe they overlay that with a former podcast we’ve done where we spoke about all the investment options out there, and if you look at the political landscape, the economic landscape and then look at the options that Sunsuper has available, to consider what is the right investment for you. We’ve got a great team of people here to help. You can jump online, visit us at Sunsuper.com.au/newschoolofsuper. There’s a wealth of information to help you make the right decisions about where your money’s invested, make informed decisions after listening to Brian, assessing all those things he’s spoken about, you have to remember, this is your single biggest asset. Think of it like your home, think about what Brian said. Come and have a chat to us if you need to. Brian, thank you so much for talking today. Always a pleasure.

Brian: Thanks very much Anne.

Voice-over: This has been The New School of Super. For information and inspiration to help you plan your future, manage you super and enjoy your retirement, visit sunsuper.com.au/thedreamproject. Or if you’ve got a superannuation or investment question, you’d like Brian and Anne to discuss, then get in touch at the schoolofsuper.com, for it to feature in one The New School of Super podcasts.

Episode 4

Socially responsible investing

In this episode, Sunsuper’s Dream Team is joined by special guest Stuart Wilson, Sunsuper’s Manager for Environmental Social and Governance (ESG) Investments to talk about socially responsible investing and Sunsuper’s approach on behalf of its members.

Voice-over: Welcome to The New School of Super. A fresh look at money matters, your Super, and the things that could affect your financial dreams now and in future, with Sunsuper's Chief Economist Brian Parker, and Head of Advice and Retirement, Anne Fuchs.

Anne Fuchs: Hello and thanks for listening. Welcome to The New School of Super. Sunsuper's Podcast Series covering investment markets, money matters, your Superannuation, and most importantly, helping you reach your retirement dreams. With me is Brian Parker, Sunsuper's Chief Economist, the rock star of economics in my mind, and what this man doesn't know about investing is not worth knowing. And we have a special guest today which is very exciting. His name is Stuart Wilson, and Stuart is the Manager of Environmental, Social, and Governance Investments here at Sunsuper. Now this is an area of investing which is getting a lot of interest out there. It's very topical. Socially responsible investing is something you might have heard about before, and Stuart is here today to talk to us about how we approach this at Sunsuper.

Anne: Now before we kick off, I'll just introduce myself in case you haven't heard the previous podcast series. My name's Anne Fuchs, and I head up Advice and Retirement here at Sunsuper. I'm passionate about helping our members get the right financial advice, so that they can live a happy and fulfilling retirement. So, Brian ...

Brian Parker: Thanks, Anne. Today, we're joined by Stuart as you said, and he's gonna explain a lot about socially responsible investing, and our approach to socially responsible investing. I think it's fair to say that people in general and super fund members in particular are probably more concerned than ever about how and where their savings are invested. Now, we take this area of investing extremely seriously at Sunsuper. Now, before I start though, there's the usual disclaimer. I need to let you know that anything we're gonna talk about today is just general information only. Any advice does not take into account your particular circumstances. You should consider those circumstances and think about getting personal advice before you act on anything we talk about today. You can also get a copy of our PDS, our Product Disclosure Statement, from our website, or by calling us on 13 11 84. Anne, over to you.

Anne: Okay, Stuart, let's start with socially responsible investing. This acronym, ESG, it was in your title before. Environmental Social Governance. It sounds like a bit of investment jargon for the ordinary person. What does this mean to Sunsuper and why is this really important that members understand this?

Stuart Wilson: Thanks, Ann and it's great to be here. Okay, so ESG is one of the many acronyms that is in my world. Environmental Social and Governance. So all things non-financial risk fall under my purview. And it's important when you're doing investments for the long term, that you're not simple looking at the next six months' earnings, and things like that, that you actually take a broader world view of trends that are happening, underlying risks that some investors not always pick up. And that's my job, to integrate these sorts of risk management processes into our investment decision making and thinking.

Anne: But what does that really mean, Stuart? So when you're talking risk and I think about investing, I think about the stock market going backwards and losing money, and I'm sure to most members, that's what they're thinking about. ESG and risk, where is the risk? What should we be looking out for and what are you looking out for in your job, in protecting our members' money?

Stuart: Okay, so when you're looking in my world, there is a whole range of issues that get thrown out. It could really come from any direction. It could be something in relation to the environment such as climate change. It could be within social issues around stolen wages, or a lack of good safety processes within a company. And within governance, all things around the Board of Directors and how good they are, through to how you remunerate or pay the CEO, and what are you motivating that CEO to do. So all of those sorts of things get thrown into my bucket.

Anne: So, what I'm hearing there is that the superannuation fund in Sunsuper, with very close to 60 billion dollars of assets under management is using that money for good societal community outcomes. Is that what I'm hearing you say?

Stuart: So we have a broad range of investments, and all things being equal, we prefer to invest in things that make a positive impact on the world. But we invest in a whole range of industries and companies.

Anne: So, let's get it into the technical just a little bit for our listeners, so that they can educate themselves about this area of investing. There's a bit of jargon that I know is used, terms such as exclusions, activism, engagement. What do these words mean when it comes to ESG investing?

Stuart: Okay, so as I mentioned, we have a whole range of things that get thrown at us from a risk perspective. They might come from media, they might come from members. They might come from the companies themselves. And we have to take all of these issues, and consider them both in terms of materiality, but also how they might impact the investment portfolio. This means that we have to put them in separate buckets, depending on how severe they may be. Exclusion for instance is something that we prefer not to do, but we will do in extreme circumstances. It means simply getting out of that industry or sector, or things relating to that issue altogether. Activism means taking a really strong view, public view of a particular issue. Engagement talks about behind closed doors meetings with companies and their management, and their boards, to try and get an improvement or resolution. And watching is simply building up our knowledge base on a particular issue, with a view to determining what to do about it.

Anne: So, what are some examples that can bring this to life? What are we not investing in, and what are some of the companies where we've decided that we're going to sell our investment, for example?

Stuart: Sure. Okay, so the main exclusion that we have is tobacco. And we got out of tobacco manufacturers around about five years ago. So, it's been a long standing exclusion. And it's something where we were actually quite early to exclude. Smoking kills almost six million people a year, and it's a unique thing in that taken as directed, it's probably going to kill you. From a customer perspective, it's not great. From an investment perspective, smoking rates globally are falling. Regulation to curb smoking is on the increase. There are E-cigarettes that are in competition. There's a whole range of head winds for that industry, and therefore it makes sense not to be invested.

Anne: So, Stuart, how is that done over a five year period?

Stuart: So, in the five years that we've been out of tobacco, that sector has actually underperformed the market. So, we've actually, it's actually been a positive for members.

Anne: So, smoking's an obvious one, we all know that tobacco is terrible for you, and everyone pretty well agrees with that probably, except the tobacco companies. So, let's think about something that's a bit more contentious and there are different views across certainly the political divide, scientific, and community around climate change. How does a fund like ours approach climate change with an ESG lens?

Stuart: So, we believe in the science of climate change, that the world is gradually getting warmer, and that is to do with human intervention. However, the energy sector is a huge part of financial markets and simply getting out removes the chance that you have for engaging with companies. We look at climate risk through a range of different factors. It's not just how quickly fossil fuels are going to be replaced by renewable energy. It's also a consideration in the physical impact, so the impact of say, the water level rising, or the frequency and intensity of storms on our assets. All of those things are being taken into account.

Anne: So do we then go and invest in renewable energy sources. Are we? Is that an extension of our approach to climate change in ESG, Stuart?

Stuart: So we've increasingly started looking at renewable energy and we've made some investments in that space. They are very, very popular at the moment, and the costs are still coming down. So, we still have a very, very disciplined investment approach, a hard headed investment approach, to make sure that we're not buying things that are just too expensive.

Anne: Okay, and I'm very mindful about time, but I think it's really important to think about, if you're an investor and this is an asset class or a belief system that you hold very deeply and you want your Superannuation to be doing good for the community, how would you invest in Sunsuper? What do you need to be looking out for in our investment menu?

Stuart: Okay, so we have over 20 different options that people can choose from. One of them is our socially conscious balanced option. It's similar to our other balanced option, which is our default fund, but it is ESG on steroids. So, it has a lot more exclusions. It moves into best of sector in relation to ESG for companies, so we try and pick the best of the best. And it's expected to perform inline with our general balanced option. So, it's something for consideration if you were of that mind.

Anne: So Stuart, are you leading a big team, and how involved is the broader Sunsuper business, you know from the top down with the Board and our Chief Executive. Do you feel like you're a very popular person, with a big team of people helping you?

Stuart: The Board is very engaged. We have a diverse Board with different backgrounds, different perspectives. One thing that they have on top of, doing everything in members' best interest is having a very keen interest in ESG and responsible investing. So, they are continually encouraging me to increase the amount of integration within the investment process. The team itself is only relatively small, but I like to think that our ESG activities extend through the investment team, where everyone is a champion.

Anne: Thank you very much, Stuart, for that explanation of ESG. In a prior episode, Brian and I were talking about investing more generally, different asset classes, and the investment menu. If this is something of interest, have a listen to that prior episode and also, you can go to our website and have a look at our investment menu, and find more information. As I said, it's an area growing of interest. I know particularly with the younger demographic of members that are very passionate about doing good with their retirement savings. So, it's been wonderful talking to you today, Stuart. Thanks for coming along, and Brian I have to say, it's a bit unnerving, you being quiet over there. We're not really used to it.

Brian: I know, it's certainly out of character, but I think it's really good to hear from experts internally like Stuart, and the main message I take out from this is that investing with an ESG lens can be done quite comfortably without compromising your return outcomes. That we believe that investing sensibly from an environmental perspective, investing with companies that actually are aware and want to benefit positively the communities they operate in, and companies with good governance ultimately make good long term investments for our members.

Anne: That's exactly right. I think the point that Stuart made about tobacco was really bringing that what you've just said to life.

Anne: All right, well thanks everyone. We'll look forward to talking with you on our next podcast episode.

Voice-over: This has been The New School of Super. For information and inspiration to help you plan your future, manage your Super, and enjoy your retirement, visit sunsuper.com.au/thedreamproject. Or, if you've got a superannuation or investment question you'd like Brian and Anne to discuss, then get in touch at newschoolofsuper.com for it to feature in one of our future New School of Super Podcasts.

Episode 5

Politics, financial markets and your super

From our new PM and whispers of a potential property crash, to the inexorable antics of President Trump and a fractious and fraught Brexit, Sunsuper’s Dream Team looks at what it all may mean for investment markets, your super and your dreams in retirement.

Voice-over: Welcome to The New School of Super, a fresh look at money matters, your super, and the things that could affect your financial dreams now and in future, with Sunsuper's Chief Economist, Brian Parker, and Head of Advice and Retirement, Anne Fuchs.

Anne Fuchs: Hello and thanks for listening. Welcome to The New School of Super, Sunsuper's podcast series covering investment markets, money matters, your superannuation, and most importantly, helping you achieve your retirement's dreams. With me today is Brian Parker, our Chief Economist here at Sunsuper, the man who knows everything about the world, the Australian economy. He reminds me all the time that he knows everything at Sunsuper, don't you, Brian?

Brian Parker: Oh, no, Anne, but as long as you think that, that's fine.

Anne: Okay. Well, look, before we get started, I should introduce myself. My name is Anne Fuchs, and I am the Head of Advice and Retirement here at Sunsuper. Me and the team, we come to work every day to help our members get good quality, trusted financial advice so that they can fulfil their personal retirement dreams.

Brian: Thanks very much, Anne. Today we just wanted to give you all a bit of an overview of what's been happening in politics, what's been happening in the Australian economy, the global economy, and also most importantly, what is it all going to mean for your retirement savings?

Anne: Because not much has been happening.

Brian: No, it's been pretty quiet really.

Anne: Very quiet. Well, we've got to do something, don't we, Brian, before we start?

Brian: Yes, we do. We need to let you all know that what you're about to hear from us is general information only. Nothing we say today can possibly take into account your personal situation. You should consider your circumstances and think about getting personal advice before acting on anything we discuss. You can also get a copy of our product disclosure statement from our website, or you can call us on 13 11 84.

Anne: Thank you, Brian. Well, Australia, have we now beat Italy as having the most prime ministers in a period of time? I mean, it's been quite extraordinary. There are certainly some problems in Canberra, to say the least. Has this had any impact on markets and investing? What's your view?

Brian: Well, it has gotten a little bit embarrassing, but what's interesting is that when you talk to global investors and you talk about political uncertainty in Australia, they kind of look at you as if you're from another planet, because relative to a lot of other places around the world, our politics looks kind of mundane. I know it's hard to believe that when we look at it from our perspective, but if you're sitting there allocating global portfolios, Australia still looks like a relatively safe investment from a political perspective.

Anne: I guess that's probably because the policy framework isn't jumping about with prime minister changes, and there is a degree of policy certainty there.

Brian: Look, that's exactly right. That's a really, really important point actually, Anne, because if you think about what really matters from the point of view of financial markets and for long-term investors is it's the long-term direction of the things like interest rates and inflation, the long-term outlook for sort of corporate profits, but even from a government policy perspective, what are both sides of politics likely to do about, say, the budget deficit, for example? Even though there's a lot of noise coming out of Canberra, those sort of broad policy settings, there's not really as much difference between the two sides as you might think. The Reserve Bank still runs monetary policy. The Australian dollar is still going to be influenced by a whole range of things, most of which have nothing to do with events in Canberra. Even when you look at the policy differences between both sides of politics, they really don't add up to much in terms of their influence on the longer-term outlook.

Anne: It's interesting, I think, when you look at developed economies that ... Pardon me, the developed economies around the world are in essence where sort of the crazy behaviour is happening at the moment, and the instability exists if we look at Trump's America and Brexit, two of the biggest developed economic blocs in the world. It just looks a bit scary right now. This morning, I turned on the news, Brian, and I need you to break this down for me and for our listeners. This prospect of a tariff war between the US and China actually looks like it's about to happen.

Brian: Oh, it's underway, well and truly, this sort of tit-for-tat increases in tariffs that both sides have engaged in, and I think there's two key messages for me. One is that the measures that have been put in place thus far, yes, they are significant, but they're not the kind of thing that could seriously derail prospects for either the US or global or Chinese economy. Yes, they are a worry, but they're not the sort of thing which could, by themselves, force the world into another recession, for example. The second thing I'd say is that the trend is clearly not your friend, that the longer this goes on, the more we do risk causing serious damage to the global economy.

Anne: One of the things I also heard on the news this morning is that Australia is choosing not to buy into the rhetoric and the tariff war, and because we rely very heavily on the Chinese economy, and we're in a bit of an awkward position because we have the strong military ties to the United States, but we also have the very clear imperative to stay good with China because our economy needs it. What's your take on that and where this could be heading?

Brian: The short answer is it's complicated, but when you look at the economic impacts potentially on Australia, firstly the bad news. The bad news is that, look, we are a small open economy, and anything that is bad news for world trade is going to be bad news for us. The second thing though is that when you think about the kind of things that we sell to the rest of the world, and most importantly, the things that we sell to China, the things that we sell to China don't tend to feed into Chinese exports. They tend to feed into what's happening within the Chinese domestic economy.

Brian: Let me explain that a bit further. Iron ore is a classic example. Out of the iron ore that we ship to China, not much of that is going to be turned into something else that ends up being sold into the United States, and therefore potentially being the kind of thing that causes Trump to get angry at us. The stuff that we ship to China overwhelmingly goes into helping to develop the infrastructure of the Chinese economy, so in that sense, our exports are not as directly vulnerable to what actually Trump might do. That's a piece of good news.

Anne: That's good news for members, but what about too ... I saw Boris Johnson on the news a lot in the last couple of weeks, and I'm worried. There was some quite dramatic language about the impact that Brexit will have on the United Kingdom and their economy. Is it as dire as that, and is that something else that could have any flow and effects for Sunsuper members and the Australian economy?

Brian: Yeah, look, I think my base case on Brexit is that firstly, yes, it's going to be in the short to medium term, a disaster, well, particularly the short term, because frankly the grownups aren't in charge.

Anne: Angela Merkel's a bit of a grownup though, isn't she?

Brian: Yes, but she's not in charge in the UK, so look, I think that ... and I do feel for Theresa May, because she really got thrown a hospital pass in being forced to deal with all this. It's very hard to see how a deal could be put in place that won't cause at least some significant disruption to the UK economy, but, and this is where the impact on Sunsuper members comes in, over the longer term, is the UK still going to be an economy that will grow and still provide investment opportunities for long-term investors? The answer is absolutely yes. In the case of Sunsuper members, do we have an exposure to the UK? Yes, we do. We will own shares that are listed on the UK stock market. A lot of those shares are in companies that actually do business not just in the UK, but all over the world. They just happen to be listed in London.

Brian: But also towards the end of last year, we acquired a small equity holding in a couple of airports in the UK, in Birmingham and Bristol. Now, you might say, "Why the hell did you do that, given that Brexit is going to be pretty ordinary?" My short answer is that firstly, we buy airports not with the idea of selling them in six to 12 months. This is going to be a multi-year investment for Sunsuper members, and also as we all know, the weather in the UK is lousy 11 months out of 12. Poms are going to fly, and every time they do, we are going to make money for our members.

Anne: Now, journalists and the media have a lot to answer for. If you turned off the TV, you'd probably be doing yourself a favor in a lot of instances, because there's a lot of bad news. There has also been some bad news about the property market here in Australia, in particular Sydney, Melbourne, and to a lesser extent, other capitals around the country. What's your interpretation of this? Because I've actually heard the term, 'we're heading into the next GFC' being thrown about.

Brian: That's a really good question. There's a lot to unpack there. Let's talk about property first. Whenever anyone asks me, "What do you think about the Australian property market," my answer is always, "Which one?" Because so much of the commentary that we read is very much Sydney and Melbourne-centric. When you talk about a bubble in Melbourne property or a bubble in Sydney property, that has not been replicated across the whole country. In fact, there are heaps of areas in the country, especially the regions that were formerly the sort of boom towns during the mining and gas boom, where you saw property prices reach ridiculous levels only to have them collapse.

Brian: If you go to some of these regional areas and talk about a property bubble, they'll look at you as if you're from another planet. A lot of the commentary, a lot of the concern, is very much Sydney and Melbourne-focused. Other parts of the country haven't seen, at least recently, anything like the kind of gains that Sydney and Melbourne have had, and so I think it's important to understand that the Australian property market is quite a diverse beast. The likelihood of getting a 20, 30, 40% across-the-board collapse in property prices is relatively low. I'm somewhat more sanguine than some of the doom-and-gloom stories out there.

Anne: Because we invest in a lot of property at Sunsuper. It's a big part of how we invest money.

Brian: Not so much residential though. Our residential property exposure in Australia is minimal.

Anne: That point you made earlier about, well, what type of property, so maybe do you want to explain? We spoke residential.

Brian: Yeah, I mean, we do have ... For example, we are Australia's largest owner and operator of holiday parks, so we own the Discovery Park network across the country. Do we have office properties? Yes, we do. Do we have industrial property exposure? Yes, we do. We don't tend to have residential exposure, although we will, for example, own shares in companies that build residential property, so that's another matter. One of the reasons we do that is that we typically find with Australian superannuation members, our members will typically already be quite heavily exposed to property, either because they work in the property industry, they own their own home, they may have investment property as well. We don't really want their super fund to be adding to their property exposure, if you like.

Brian: The second thing is that we are quite open to the idea of property investments internationally. For example, in the United States, we will own some exposure in what we call multifamily property investment. These are apartment or housing developments that are built for the rental market, where the yield you can get on those assets is actually quite attractive for Australians.

Anne: Actually, I understand too from our head of unlisted assets, Michael Weaver, that we own a property on the Königsallee in Dusseldorf where my husband is from, so I was very, very happy. I'll have to go and visit it when I go and visit the in-laws in Dusseldorf soon.

Brian: Absolutely, and point of them is that we own that building. I think that's an important point to bear in mind. We are a global investor. We build globally diversified portfolios in all the asset classes we invest in, including in property. Anne, you mentioned the GFC again, and a lot of people in the media talking about, well, is there a risk of another crisis? Look, we've now had many years of decent investment returns, very strong investment returns in fact. It's now been about a decade since the GFC. The world economy has grown at a pretty solid pace. Investment returns have been very strong. Will we see another recession? Yes, we will inevitably. Downturns happen. Recessions happen. Can we time them with any degree of precision? I would argue we can't.

Brian: Many of our members, in fact most Sunsuper members, are relatively young. If I'm sitting here, if I was in my 20s or my 30s, which is where the bulk of our members are, I am investing for 30, 40, 50 years. Now, over that period, I'm highly likely to have to experience a whole range of different crises along the way. I might end up with a major market downturn or a significant financial crisis, I don't know, maybe four, five, six times during my working life. I might experience a whole bunch of sort of miniature versions of it over that time. This is how the economy works. This is how financial markets behave.

Brian: But the key takeout for members is, if you see a major market downturn, your level of pain, how bad you feel about that, very much determines what sort of investor you are. If you're the kind of investor that says, "Look, this is a part of life. I understand that markets will have their ups and downs, but over the longer term, they deliver good, strong returns," if that is your view, that means you're likely to be a far more optimistic and perhaps a more growth-orientated investor. But if you're the sort of investor that says, "Every time there's a major market downturn, I lose sleep," that would tend to suggest that you're a more conservative investor.

Anne: I think that's a really good point, Brian. There was an episode we did recently about life-cycle investing, and timing is, I guess, everything from an investor point. As someone that's the person that heads up all things retirement at Sunsuper, our members ... Well, obviously financial advice is really important, but when you retire and where that sits within the cycle of investments and financial crisis is equally as important if you're realising or in essence withdrawing some money out of super.

Anne: I think I'm mindful of time, and I just encourage our listeners to go back to that episode around our investment options. Brian's spoken about what type of investor you are and your risk profile, how optimistic you are. Also think about, what is the timeframe for when you want to retire? If you are feeling nervous, we encourage you to pick up the phone and speak to one of our financial advisors, or speak to your advisor if you have one already. Brian, thanks. We've really covered a lot of topics today, haven't we?

Brian: We have indeed actually, and thanks very much for your time.

Anne: Thank you.

Voice-over: This has been The New School of Super. For information and inspiration to help you plan your future, manage your super, and enjoy your retirement, visit sunsuper.com.au/thedreamproject, or if you've got a superannuation or investment question you'd like Brian and Anne to discuss, then get in touch at newschoolofsuper.com for it to feature in one of our future New School of Super podcasts.

Episode 6

Using your super when you retire

Join Sunsuper’s Dream Team as Chief Economist Brian Parker puts Head of Advice and Retirement Anne Fuchs in the hot seat to discuss why it’s never too early to start planning for your future, and explain when and how you can most tax-effectively access your super pot when you retire.

Voice-over: Welcome to The New School of Super, a fresh look at money matters, your super, and the things that could affect your financial dreams now and in future with Sunsuper's Chief Economist, Brian Parker and Head of Advice and Retirement, Anne Fuchs.

Anne Fuchs: Hello and thanks for listening. Welcome to The New School of Super, Sunsuper's podcast series covering investment markets, money matters, and your superannuation, and most importantly, helping you achieve your retirement dreams. With me is my friend, the Chief Economist of Sunsuper whose name is Brian Parker. This man knows everything when it comes to investing. He is a source, font of wisdom that we rely on heavily here at Sunsuper. It's great to see you Brian.

Brian Parker: Thanks Anne. Good to be with you again.

Anne: Now, I know you know who I am, but I probably should introduce myself to our listeners. What do you think?

Brian: Every chance really.

Anne: Every chance. So my name is Anne Fuchs. A little bit of gem for our listeners. Fuchs means fox. There's a bit of tidbit for you today. I head up advice and retirement here at Sunsuper. The team and I, we are passionate about helping our members fulfill their retirement dreams, and I would argue the most important enabler for that is actually good quality financial advice.

Brian: Well, thanks very much for that Anne. Today we're actually going to flip our normal podcast schedule, so yes.

Anne: Oh, we're getting crazy.

Brian: We're going a bit crazy. I am actually going to do the interviewing for a change. I'm going to actually ask you some questions. Now in particular today we're going to delve into the whys and hows of using your super balance when you retire, and I'm going to look to you Anne to give everybody listening the straight answers on how far ahead people should be thinking about retirement and what they should do now to make sure the lifestyle they want in retirement is going to be delivered.

Brian: Now before we start, we do need to go through our usual disclaimer. I need to let everyone listening know that what we're going to talk about today is general information only. Anything we say today can never possibly take into account your particular circumstances. You need to consider your own circumstances and think about getting personal advice before acting on anything we talk about today. You can also get a copy of our product disclosure statement from our website, or by calling us on 13 11 84.

Anne: Look, talking superannuation and retirement particularly to younger people but I would actually argue for most Australians is something they really don't want to talk about. I remember when my grandfather retired at 65, people weren't living, particularly men much longer after that. Where now men are living to 84, 87, and the kids that are being born, the babies being born now will well and truly make that, they'll all be getting a letter from King Charles probably and Queen Catherine.

Brian: That's going to be really a frightening thought. That's all good points Anne. In fact, I've always felt the old adage was that people start to pay attention to their super when the balance gets to either 100,000 or a year salary whatever comes first. But when should people be starting to really think about their super and think about retirement? At what point should they really start planning for their retirement?

Anne: There's a really disturbing statistic Brian that people in their 30s, early 30s in particular, the average man has about $43,000 in their superannuation and the women only have $33k. Probably in our 30s, that's when a lot of us have interrupted career breaks because we're having families, so that situation and that inner quality is then compounded again and again, which is why we're seeing more women retiring in poverty and women retiring with 50% of the balances as men.

Anne: So my argument would be that particularly for women, they need to be taking a much active interest as early as possible, but of course men too. I think I speak to all of our listeners that are feminists out there that if they are calling themselves a feminist and they believe in equal opportunity, then you can't assume that in superannuation you're getting a fair go and you need to do more in terms of planning for your retirement.

Anne: I think culturally too about superannuation Brian, and when our members call us, you're spot on, they generally only call us when their balance is of a decent size or they're getting close to retirement. The longer you leave it, my analogy is it's almost like putting on sunscreen. The early you put on sunscreen, the better condition your skin will be in. If you start putting sunscreen on in your 40s, the damage is done. If you're not paying attention to your superannuation until you're late 40s, early 50s, there is only so much a financial advisor can do. You have a couple of choices, you work longer, you invest in more risky assets, and put out your retirement recognizing the risk attached to that, or you die earlier. None of these are particularly attractive options for most Australians.

Brian: Yes, right, Anne, it really just highlights just how important financial advice is, and over many, many years of talking to members and talking to clients of financial advisors, I really haven't spoken to anyone who said, "Gee, I wish I would have come here later." I've spoken to plenty of people who've said, "I should've come here a lot earlier," but also people who've said to me, client seminars or member seminars, "Gee, I should've brought my children or brought my grandchildren along to listen to this."

Brian: Okay, Anne, so talk to us about when people can actually get their hands on their super and how they go about it?

Anne: This is really important when you think about the life expectancies I was mentioning earlier that we're living longer. So the government has a real risk on their hands. They can't afford to pay everyone a pension if we're all living longer. So they've got to make some hard decisions. They've got to balance a budget and so they're looking at what is the right preservation age now and into the future. As it stands it's 56, but it's increasing. This is what our listeners need to understand, that if you're born after the 30th of June in 1964, it'll be 60 for you.

Anne: I as almost a 43-year-old I'm very well prepared that it might be 70 by the time I retire, which is all well and good if I work in a white collar job and I'm not doing physical labor. But many of our members who are listening would be in quite physical roles, whether they're in hairdressing, or laboring, and that has a much bigger impact for our members. I encourage our listeners to think about, "Well, if that preservation continues to go up, what are my options in terms of planning for retirement," and picking up the phone and speaking to us earlier.

Anne: One of the things Brian I probably want to point out to our listeners is that they probably don't understand that when they retire, if they're getting good quality advice, they can set up an income account in retirement. Once the money reaches preservation age, they can roll into this thing that a lot of people call in everyday society a pension and they can use that to draw a tax-free income in retirement.

Brian: At the end of the day I mean superannuation is meant to provide a long-term income stream in your retirement, and your point about that people do tend to look at their superannuation balance and then just kind of take it out, and depending on the size of the balance and what sort of debts for example you might retire with, we do worry that a lot of people take that balance out and then either spend it on a retirement holiday or pay down a mortgage or whatever, but they're not left with much left to actually fund their retirement income. I think it's important for people to consider that when you do retire, the advantages of leaving the money in the system, leaving the money invested so that it can continue to grow.

Anne: Yeah, it's working for you.

Brian: Absolutely, because we all hope to live a hell of a long time.

Anne: Well, and I'd also point out too that if you're keeping it in that superannuation product as opposed to moving it across into either a transition to retirement which we can touch on our retirement income account, you're paying tax unnecessarily within the fund, where if you're moving it across to a retirement product you're in a tax-free environment. And I don't know any Australian ever that wants to pay more tax than what they have to pay.

Brian: Absolutely.

Anne: There's a lot of people too if you think about retirement and what the new paradigm is that maybe retirement isn't just sort of starting getting out the knitting needles or the golf clubs, but you might scale back your work, you might do a different type of job, you might pursue a different career, open up a coffee shop or do tutoring if you were a teacher, whatever that might be, and you can actually set up what's called the transition to retirement account when you reach preservation age. So you can keep contributing to super and also draw an income which is a really tax effective way of accessing your superannuation once you've hit that preservation age.

Brian: Okay. And what about those people who want to have a more traditional retirement, they want to be working one day and not working the next, how do they get access to their super and what should they do?

Anne: That's a really good question Brian. For those people that want to pack up their desk, go home, and that's it, put their feet up and relax and enjoy their retirement, they have a couple of options available to them. If they meet that preservation age I spoke about earlier and they really are retired, then they can look at a retirement income account. Or if they hit age 65, that's also worth noting, there are people that will continue to work full time after age 65. They can also set up a retirement income account.

Anne: The thing to note there is a retirement income account and I did touch on it before, but I cannot stress it enough why this retirement income account is so great for anyone that meets that preservation age or retirement age is because they can be investing with us, with our fabulous investment team, having all of the benefits associated with that, drawing an income stream to fund their lifestyle, their holidays and all of that, and there is not a cent of tax being paid. Now if that is not a compelling opportunity and something to consider. But sadly I have to say a lot of Australians do take the approach that they either get to retirement age or preservation age and they pull their money out and put it in the bank, and we all know what interest rates are doing. Are they doing well or not so well?

Brian: Lots of things with it, bank interest is ... Even pre-tax bank interest is pretty disappointing at the moment.

Anne: Pretty dismal, so not doing much. And if you've got that longevity risk of living to 80, 90, 100, you've got that money's got to be doing something, doesn't it Brian?

Brian: Yeah, absolutely, we all hope to live for a long time. So while we want to be somewhat cautious in our investment approach, but we also want to make sure that our assets will hopefully live as long as we do.

Brian: Okay, so we talked a lot about the need for an income in retirement. We talked about longevity. We talked about transition to retirement. But for those members approaching retirement, what should they do now?

Anne: Do not go to doctor Google would be my advice. This is a serious matter. Your health, your family, and your financial security are the three most important things. You will always go and seek professional advice when it comes to your health, and I think, I strongly believe the same applies to money, and at Sunsuper you can. We have great tools and calculators and lots of information on our website if you want to self-educate. I should point out too that there is lots of information particularly on the MoneySmart website that ASIC have. But I think you cannot beat talking to somebody either face-to-face or over the phone, and depending on the complexity of your situation because the reality is this concept of retirement is an emotional thing, it can create a lot of conflicting emotions of joy and fear and having that human interaction is important.

Anne: Sunsuper have a team of advisers that can provide our members advice about their assets invested with Sunsuper. The sooner you do this, think of I'd go back to the skin analogy Brian. We all are slathering sunscreen all over our children from the moment they leave the house, and maybe we can make generational change here because when I was a kid growing up in Brisbane, you were growing up on the Gold Coast, I don't recall my parents' hysteria if I left the house without sunscreen on. But these days kids know they've got to put on sunscreen. Maybe we can create generational change in superannuation and get the younger people more engaged and buying into this investment that they own. I would encourage the older members listening to talk to your children about it, have a look at the statement with them, play around with the calculator, and again, pick up the phone. We've got a great team here to help you.

Brian: Thanks Anne. Thanks everybody listening for their time. We hope to join you again in the next podcast.

Voice-over: This has been The New School of Super. For information and inspiration to help you plan your future, manage your super, and enjoy your retirement visit sunsuper.com.au/thedreamproject, or if you've got a superannuation or investment question you'd like Brian and Anne to discuss, then get in touch at newschoolofsuper.com for it to feature in one of our future New School of Super podcasts.

Product issued by Sunsuper Pty Ltd (ABN 88 010 720 840, AFSL No. 228975). This podcast contains general advice only, consider the Product Disclosure Statement before making a decision. Call 13 11 84 or visit sunsuper.com.au for a copy.

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