Diversified Funds Inwardly Sophisticated, Outwardly Simple

Diversified Funds Inwardly sophisticated, outwardly simple

Why diversification matters Four investment pillars

We believe that a successful investment strategy starts with an When constructing investment portfolios, there are a number of asset allocation suitable for its objective. elements to consider, including the investment objective, time horizon, risk tolerance, taxes and costs. In practice, diversification is a rigorously tested application of common sense: Markets will often behave differently from each Many investors can become overwhelmed by the choice of other—sometimes marginally, sometimes greatly—at any given investment options, asset classes and investment styles. They time. also face behavioural risks in sticking to their investment plan due to the temptation of performance chasing or overreacting Owning a portfolio with at least some exposure to many or to market events. all key market components ensures the investor of some participation in stronger areas while also mitigating the impact We have designed Vanguard Diversified Funds to help investors of weaker areas. achieve their goals by focusing on factors within their control.

Vanguard’s suite of Diversified Funds apply a number of At the core of Vanguard Diversified Funds are the four key investment best practices to give you portfolios you can use pillars of our enduring investment philosophy. to add real value for your clients. The portfolios include asset allocation, broad diversification and automatic rebalancing, • Create clear, appropriate investment goals | An which carefully balances risk, return and cost. appropriate investment goal should be measurable and attainable. Success should not depend upon outsized The funds offer a straightforward design, low investment costs investment returns, or upon impractical saving or spending and exposure to a mix of equity and fixed income investments requirements. to help maximise their usefulness to advisers and their clients. • Develop a suitable asset allocation using broadly diversified funds | A sound investment strategy starts with an asset allocation suitable for the portfolio’s objective. The allocation should be built upon reasonable expectations for risk and returns, and should use diversified investments to avoid exposure to unnecessary risks.

• Minimise cost | Markets are unpredictable. Costs are forever. The lower your costs, the greater your share of an investment’s return. And research suggests that lower- cost investments have tended to outperform higher-cost alternatives.

• Maintain perspective and long-term discipline | Investing can provoke strong emotions. Discipline and perspective are the qualities that can help investors remain committed to their long-term investment programmes through periods of market uncertainty.

By following our best practice approach to asset allocation, diversification and transparency, Vanguard Diversified Funds maintain a balance between risk, return and cost.

1 Vanguard Diversified Funds at a glance Risk and return

Investors can choose between four multi-sector portfolio Vanguard Diversified Funds aim to provide long-term returns solutions, depending on what they are looking to achieve, how that match investors’ desired level of risk. long they have to invest and how much risk they are prepared to take on. The broad allocations to defensive (fixed income) and growth (equities) are the main factors influencing the risk/return profiles Vanguard Diversified Funds cater to a variety of goals, risk of the Diversified Fund portfolios. tolerances and time horizons. Vanguard Diversified Funds are designed with a medium to Vanguard Diversified Funds: income/growth allocation long-term investor in mind (a time horizon of at least five years), reflecting the reality that the majority of Australian investors Conservative Balanced Growth High Growth need to accept some market risk in order to reach their

10 investment goals. 30 50 30 70 50 70 90

High Growth Income % Growth % Growth

Balanced The key objective is to maximise the chances of investment Return success by providing low-cost solutions that meet the primary portfolio construction needs of most investors. Vanguard Conservative Diversified Funds are efficiently managed using a low-cost index approach to provide broad diversification across multiple asset Risk (Volatility) classes through a transparent and tax-efficient portfolio. Each fund has a strong track record in delivering competitive returns through disciplined asset allocation.

Strategic asset allocation as the starting point

Global Vanguard research shows that strategic asset allocation drives the vast majority of return variation and ultimately the investment experience, rather than market timing or security selection.

Percentage of return variation explained by policy return1

Asset allocation Security selection and market timing 89.3%

1 Notes: For each fund in our sample, a calculated adjusted R2 represents the percentage of actual-return variation explained by policy-return variation. The percentage shown in the figure represents the median observation from the distribution of percentage of return variation explained by asset allocation for balanced funds. The Australian market sample covered 600 balanced funds from January 1, 1990, through June 30, 2016. Calculations were based on monthly net returns, and policy allocations were derived from a fund’s actual performance compared with a benchmark using returns-based style analysis (as developed by William F. Sharpe) on a 36-month rolling basis. Funds were selected from Morningstar’s Multi-Sector Balanced category. Only funds with at least 48 months of return history were considered in the analysis. The policy portfolio was assumed to have an expense ratio of 2.0 bps per month (24 bps annually, or 0.24%). Sources: Vanguard calculations, using data from Morningstar, Inc.

2 Why use Vanguard Diversified Funds? Diversification helps to smooth returns

Broad diversificationmaintains investors’ exposure across Increasing the number of securities in an investment portfolio key global asset and sub-asset classes, allowing the investor to through an index managed fund is one way of reducing participate in the stronger-performing markets and sectors while risk within an individual asset class. But to achieve true mitigating the negative impact of weaker-performing ones. diversification it’s also important to invest across asset classes.

Cost effective uses Vanguard’s low-cost index funds as When choosing where to invest your money, it’s important to building blocks and benefits from Vanguard’s economies of understand that the best and worst performing asset classes scale. This means that these funds deliver a sophisticated all-in- will often vary from one year to the next, as shown in the one investment solution at a relatively low cost. diagram below.

The annual performance follows no discernible pattern, and Automatic re-balancing removes the risk of drifting from strategies that tilt or time the portfolio in an effort to outperform a target asset allocation, which could lead to portfolio risk also run the risk of substantial underperformance relative to the exposures that are not aligned with your clients’ risk and return broad market. A diversified mix of investments across asset objectives. classes can help smooth out returns over time.

Low maintenance provides exposure to a consistent At Vanguard we believe investors should be broadly mix of equity and bonds investments. This gives you a low- diversified—both across asset classes and within each asset maintenance investment solution, allowing you to focus on class. A truly diversified investment approach minimises value-added client activities, such as financial planning and portfolio risk. Poor performing assets are offset by better asset location. performing assets to reduce return volatility over time.

Financial year returns for the major asset classes (%), 20 years to 30 June 20162

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 Best performer

Worst performer

Australian shares US shares Australian listed property International shares Australian bonds International listed propertyC A International shares (Hedged) International bonds (Hedged)B Cash Source: Andex Charts Pty Ltd June 2016. 2Notes: Source: A. MSCI Andex World Charts ex–Australia Pty LtdNet TotalJune Return 2016. Index (Local Currency) – represents a continuously hedged portfolio without any impact from foreign exchange uctuations. B. Index prior to 30 June 2008 is the CitigroupNotes: World A. MSCI Government World Bond ex–Australia Index AUD hedged, Net Total from Return30 June 2008Index the (Local index is Currency) the Barclays – Global represents Treasury aIndex continuously AUD hedged (previously:hedged portfolio Lehman Global without Treasury any Index impact AUD fromhedged). foreign C. Prior exchange to 1 May 2013,fluctuations. index is the UBS B. IndexGlobal Realprior Estate to 30Investors June Index2008 ex is Australia the Citigroup with net dividendsWorld Governmentreinvested. From Bond May 2013Index the AUDindex ihedged,s the FTSE from EPRA/NAREIT 30 June Developed 2008 the ex AUSindex Rental is the Index Barclays with net dividendsGlobal Treasury reinvested.Index AUD Past performancehedged (previously: is not an indicator Lehman of future Global performance. Treasury Index AUD hedged). C. Prior to 1 May 2013, index is the UBS Global Real Estate Investors Index ex Australia with net dividends reinvested. From May 2013 the index is the FTSE EPRA/NAREIT Developed ex AUS Rental Index with net dividends reinvested. Past performance is not an indicator of future performance.

3 Broad and deep portfolio construction The benefits of automatic rebalancing

Vanguard Diversified Funds are constructed using a top-down Overcoming the problem of drift process. First we allocate assets across broad asset classes— equities, fixed income or cash. Then we allocate assets within Over time, various asset classes produce different returns. Left each class—domestic/international equities, bonds or property. untouched, the allocation weights will drift from the investor’s target allocation. This drift may subject your client to more The low and often negative correlation between equities (or less) risk than originally intended. To ensure the portfolio and fixed income makes these asset classes excellent aligns with its target risk and return characteristics, it must be complements. periodically rebalanced to its original asset allocation.

Low and negatively correlated assets provide diversification Avoiding behavioural pitfalls during market cycles and reduce risk in a portfolio3

olling five year correlations between equity and fixed income Historically, significant rebalancing opportunities have come after extreme market events. Your clients might resist you rebalancing their portfolios during or after a period of poor investment performance, especially when markets remain jittery. The thought of selling high-performing asset classes and investing in the worst-performing asset classes seems counterintuitive, despite the proven benefits of this approach.

Fixed income can provide a strong ballast to equity risk during periods of market stress to dampen portfolio losses and volatility.

Diversification is particularly critical during periods of market stress4

Median asset returns during the worst decile of Australian equity months – February 1992 to December 2016

2% 0.6 0.5 0.4 0

–2 –1.6 –2.0

Return –2.7 –4 –4.0

–6 –5.8 Australian Equities Australian Property Global High Yield Debt Global Fixed Income Global Equities Global Property Australian Fixed Income Australian Cash

3 The chart shows the rolling five year correlation for various asset classes. The dataset runs from 30 April 1990 to 31 December 2016. The 30/70 bond index is constructed from a 30% weighting to Bloomberg Ausbond Composite Index and 70% to Barclays Global Aggregate Index hedged into AUD. 40/60 equity index is constructed from a 40% weighting to S&P/ASX 300 Accumulation Index and 60% to MSCI World ex Australia Index. Source: Bloomberg, Barclays Live, FactSet, Thomson Reuters Datastream.

4 Median asset returns during the worst decile of Australian equity monthly returns for the period 31 February 1992 to 31 December 2016. Australian Equities – S&P/ ASX 300 Accumulation Index, Global Equities – MSCI World ex Australia Index, Australian Property - S&P/ASX 300 A-REIT Index, Global Property - FTSE/NAREIT Developed Index in AUD, Global High Yield Debt – 1992 to 1998 US Corporate High Yield Index Local Currency and 1999 to 2016 Global High Yield USD Hedged, Australian Fixed Income – Bloomberg Ausbond Composite Index, Global Fixed Income – Barclays Global Aggregate Index hedged into AUD, Australian Cash – Bloomberg AusBond Bankbill Index. Source: Bloomberg, Barclays Live, FactSet, Thomson Reuters Datastream.

4 Guarding against return chasing Any recommended changes then go to Vanguard’s global Strategic Asset Allocation Committee, which assesses the Vanguard Diversified Funds stick to a set asset allocation without feasibility, tax impact and costs before presenting to the Board having to continuously monitor and manually rebalance the of Vanguard Australia for approval. portfolio. This helps keep your client portfolios aligned to their preferred target allocation. Automatically adhering to a client’s …and driven by powerful insights predetermined asset allocation, helps to guard against the tendency to chase returns by moving into and out of the best and Vanguard Capital Markets Model is a powerful financial worst performing sectors based upon recent past performance. simulator. The Vanguard Capital Markets Model is a proprietary Our analysis of fund flows suggests that this is what most financial simulation tool developed and maintained by investors, even professional investors, end up doing, much Vanguard’s Investment Strategy Group. The model forecasts to their detriment. As an additional investor benefit, through distributions of future returns for a wide array of broad continuous cash flow management, Vanguard Diversified Funds asset classes, including Australian and international equity rebalance in a low-transaction, cost-efficient way. markets, Australian Treasury and corporate fixed income markets, international fixed income markets, money markets, Powered by low-cost, high-quality commodities, and certain alternative investment strategies. index funds… • Forecasts future returns for a wide range of asset classes.

With over 40 years of index management experience around • Constructs portfolio solutions with powerful the world, and more than 20 years in Australia, Vanguard is a asset allocation tools. leader in the field of indexing. • Examines potential portfolios and weighs risk/return trade-offs. Vanguard Diversified Funds leverage this deep expertise by using our low-cost, high-quality index funds. • Generates thousands of simulations to show the range of potential outcomes. Stable low-cost core | Index funds can provide a core for investment portfolios, surrounded by carefully selected and Key features of the asset-return simulation model in the VCMM talented active fund manager satellites. include a probabilistic (distributional) framework, forward- looking return assumptions, a dependence on current market Minimal tracking error | We reduce tracking error risk by conditions and the use of non-normal distributions. holding most or all of the index securities very close to their index weights, providing truly diversified market exposure and increasing performance consistency.

Market cap-weighted | We weight our index funds to reflect the whole market because we believe an index should reflect the total market exposure to an asset class.

…informed by global expertise and deep research…

The strategic asset allocations for Vanguard Diversified Funds Investment Strategy Group are reviewed annually by Vanguard’s Investment Strategy Group using our proprietary Vanguard Capital Markets Model. Vanguard’s Investment Strategy Group is a global team of economists and investment and portfolio construction We consider a number of factors, including: strategists with a wide variety of specialties, ranging from • new asset classes monetary policy to index construction to market trends. • currency exposure Their research serves as the basis for Vanguard’s investment • home bias principles and methodology, guides Vanguard’s global • regulatory and tax impact leadership and influences decisions about our investment • investment costs offerings and portfolio construction. • investor behaviour.

5 Costs matter Designed to help you and your clients

Cost remains one of the most important factors in successful Serving as a diversified core investment investing, in any market cycle. Broadly diversified, low cost, static-allocation portfolios can serve as suitable accumulation components for a broader Investors can’t control the markets, but they can control how investment programme. much they are willing to pay. Assisting product suitability Every dollar that investors pay for management fees or trading Well-constructed and implemented portfolios give you more commissions is a dollar less of potential return. time and resources to focus on our clients and ensure portfolios align closely to their financial situation, return objectives and At Vanguard we regularly review our risk tolerance. funds for ways to reduce costs and give investors their best chance of success. Enhancing your role as client coach Simple, packaged portfolios can help you to help your clients Vanguard is structured to lower costs 0.29 avoid common behaviours that tend to reduce investor returns consistently over time as funds under % p.a. or increase investor risk, such as market timing and chasing top- management grow. Our goal is to performing funds. ensure investors benefit directly when economies of scale bring down the costs of running our funds Serving a variety of client types sustainably. The range of fixed allocations means that you can find a fund that’s appropriate for many different kinds of clients. The low With a management expense ratio of 0.29%, wholesale cost and low maintenance of these funds allows you to serve investors in Vanguard Diversified Funds may pay as little as even low-engaged, low-fee investors profitably. $2.90 a year for every $1000 they invest. Focusing on clients Management expense ratio from July 2017 (% p.a.) Preset investment solutions can free up the time and resources that you might have traditionally spent on activities such as Vanguard Conservative Index Fund 0.29 fund selection and oversight. Selecting a suitable Vanguard Vanguard Balanced Index Fund 0.29 Diversified Fund can allow you to spend more time building a Vanguard Growth Index Fund 0.29 sustainable and valuable business, enhancing relationships with Vanguard High Growth Index Fund 0.29 your existing clients and finding new ones.

Making promises you can keep Making promises about future investment performance can hurt your credibility when it inevitably goes wrong. Using static asset-allocation portfolios can help you to shift conversations from the dead-end topic of investment performance to critical financial planning areas such as estate and family planning, areas which entail less market risk. These services can provide a more reliable foundation for an enduring advice practice.

6 Vanguard Diversified Funds

A focus on product design and suitability

Product design Vanguard Diversified Funds apply a number of investment best practices, including the principles of asset allocation, broad diversification, and balancing risk, return and cost. The funds offer a straightforward design, low investment costs and broad exposure to a mix of equity and fixed income investments. Vanguard believes these product features are designed to place client interests first.

Product suitability The investment best practices underpinning Vanguard Diversified Funds should not replace the ‘know your client’ process. The decision to invest in a static-allocation fund is only as effective as the suitability assessment and ‘know your client’ process that precedes it.

Underlying fund asset allocation5 High Conservative Balance Growth Growth Asset Classes Asset Allocation (%) Vanguard Cash Plus Fund 10.0 0.0 0.0 0.0 Vanguard Australian Fixed Interest Index Fund 18.0 15.0 9.0 3.0 Vanguard Global Aggregate Bond Index Fund (Hedged) 42.0 35.0 21.0 7. 0 Total Income 70.0 50.0 30.0 10.0 Vanguard Australian Shares Index Fund 12.0 20.0 28.0 36.0 Vanguard International Shares Index Fund 8.5 14.5 20.5 26.5 Vanguard International Shares Index Fund (Hedged) 5.5 9.0 12.5 16.0 Vanguard International Small Companies Index Fund 2.0 3.5 5.0 6.5 Vanguard Emerging Markets Shares Index Fund 2.0 3.0 4.0 5.0 Total Growth 30.0 50.0 70.0 90.0

5 Target Asset Allocations effective from July 2017.

7 Fact sheet | 31 March 2017

Vanguard Conservative Index Fund

Asset allocation1 (%) Fund Target Range Vanguard Conservative Index Fund Growth assets Vanguard Australian Shares Index Fund (Wholesale) 13.0 13.0 11.0 - 15.0 Vanguard International Shares Index Fund (Wholesale) 10.1 10.0 8.0 - 12.0 Risk profile Target asset allocation: where your money is Vanguard International Property Securities Index Fund (Hedged) (Wholesale) 2.1 2.0 0.0 - 4.0 invested Vanguard Australian Property Securities Index Fund (Wholesale) 2.0 2.0 0.0 - 4.0 70% income, 30% growth. Vanguard Emerging Markets Shares Index Fund (Wholesale) 1.6 1.5 0.0 - 3.5 Vanguard International Small Companies Index Fund (Wholesale) 1.4 1.5 0.0 - 3.5 Investment objective Total growth 30.2 30.0 28 - 32 Income assets The Vanguard Conservative Index Fund seeks to track the Vanguard Australian Fixed Interest Index Fund (Wholesale) 23.9 24.0 22.0 - 26.0 Vanguard International Fixed Interest Index Fund (Hedged) (Wholesale) 22.8 23.0 21.0 - 25.0 weighted average return of the various indices of the underlying Vanguard International Credit Securities Index Fund (Hedged) (Wholesale) 13.0 13.0 11.0 - 15.0 funds in which it invests, in proportion to the Strategic Asset Vanguard Cash Plus Fund (Wholesale) 10.1 10.0 8.0 - 12.0 Allocation, before taking into account fees, expenses and tax. Total income 69.8 70.0 68 - 72 Conservative Balanced Growth High Growth Total 100.0 100.0 Fund overview

The Fund provides low-cost access to a range of sector funds, offering broad diversification across multiple asset classes. The Conservative Fund is biased towards income assets, and is designed for investors with a low tolerance for risk. The Fund targets a 70% allocation to income asset classes and a 30% allocation to growth asset classes.  10.0 Cash  18.0 Australian Fixed Interest Investor profile  42.0 International Fixed Interest (Hedged)  12.0 Australian Shares Investment horizon • Short to medium term investment horizon  8.5 International Shares Notes: • Seeking a steady source of income with some capital growth  International Shares (Hedged) 1. On 2 December 2013 the fund began investing in accordance with a new Strategic Asset Allocation. 5.5 Short Long potential  2.0 International Small Companies • Low tolerance for risk.  2.0 Emerging Markets For more information: Risk tolerance Our telephone service is available from 8am to 6pm, Monday-Friday AEST. Low High For personal investors: For advisers: For institutional investors: Call 1300 655 101 Call 1300 655 205 Call 1300 655 102 Email [email protected] Email [email protected] Email [email protected] Investment goal

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken your circumstances into account when Capital protection Capital growth preparing the above information so it may not be applicable to your circumstances. You should consider your circumstances and our Product Disclosure Statement (PDS) before making any investment decision. You can access our PDS on our website or by calling us. This information was prepared in good faith and we accept no liability for any errors or omissions. Unless otherwise stated, all currencies shown in this document are in Australian dollars. The funds or securities referred to herein are not sponsored, endorsed, or promoted by MSCI, and MSCI bears no liability with respect to any such funds or securities. The PDS contains a more detailed description of the limited relationship MSCI has with Vanguard and any related funds. S&P® is a registered trademark of Standard & Poor’s Financial Services LLC (“S&P”) and ASX is a registered trademark of ASX Operations Pty Limited (“ASX”) and such marks have been licensed for use by S&P Dow Jones Indices LLC and its affiliates and sublicensed for certain purposes by The Vanguard Group, Inc. The index is a product of S&P Dow Jones Indices LLC and has been licensed for use by Vanguard Investments Australia. The fund is not sponsored, endorsed, sold or promoted by S&P Dow Jones Indices LLC, S&P, ASX or their respective affiliates, and none of S&P Dow Jones Indices LLC, S&P, ASX nor their respective affiliates makes any representation regarding the advisability of investing in such product. All rights in the Index vest in FTSE International Limited (“FTSE”) and The Association of Superannuation Funds of Australia (“ASFA”). “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE under licence. “ASFA™”is a trade mark of ASFA. The fund (the 'Product') has been developed solely by Vanguard. For the most up to The Index is calculated by FTSE or its agent. FTSE and its licensors are not connected to and do not sponsor, advise, recommend, endorse or promote the Product and do not accept any liability whatsoever to any person arising out of (a) the use of, reliance on or any error in the Index or (b) investment in or operation of the Product. FTSE date information and performance data about makes no claim, prediction, warranty or representation either as to the results to be obtained from the Product or the suitability of the Index for the purpose to which it is For the most up-to-date being put by Vanguard. thisfund fund, data, pleaseplease scan scan the Bloomberg Finance L.P. and its affiliates (collectively, “Bloomberg”) are not affiliated with Vanguard and do not approve, endorse, review, or recommend the fund. QRthe QRcode code below. below BLOOMBERG and the index are trademarks or service marks of Bloomberg and have been licensed to Vanguard. Bloomberg does not guarantee the timeliness, accurateness, or completeness of any data or information relating to the index. The Products are not sponsored, endorsed, sold or promoted by Barclays Capital Inc. or its affiliates (“Barclays”). Barclays does not make any representation regarding the advisability of investing in the Products or the advisability of investing in securities generally. Barclays’ only relationship with Vanguard is the licensing of the Index which is determined, composed and calculated by Barclays without regard to Vanguard or the Products. Barclays has no obligation to take the needs of Vanguard or the owners of the Products into consideration in determining, composing or calculating the Index. Barclays has no obligation or liability in connection with administration, marketing or trading of the Products. © 2017 Vanguard Investments Australia, All rights reserved. 8132_032017

8 Fact sheet | 31 March 2017

Vanguard Balanced Index Fund

Asset allocation1 (%) Fund Target Range Vanguard Balanced Index Fund Growth assets Vanguard Australian Shares Index Fund (Wholesale) 22.2 22.0 20.0 - 24.0 Vanguard International Shares Index Fund (Wholesale) 16.9 17.0 15.0 - 19.0 Risk profile Target asset allocation: where your money is Vanguard Australian Property Securities Index Fund (Wholesale) 3.0 3.0 1.0 - 5.0 invested Vanguard International Property Securities Index Fund (Hedged) (Wholesale) 3.0 3.0 1.0 - 5.0 50% income, 50% growth. Vanguard International Small Companies Index Fund (Wholesale) 2.5 2.5 0.5 - 4.5 Vanguard Emerging Markets Shares Index Fund (Wholesale) 2.4 2.5 0.5 - 4.5 Investment objective Total growth 50.0 50.0 48 - 52 Income assets The Vanguard Balanced Index Fund seeks to track the weighted Vanguard Australian Fixed Interest Index Fund (Wholesale) 20.0 20.0 18.0 - 22.0 Vanguard International Fixed Interest Index Fund (Hedged) (Wholesale) 19.2 19.0 17.0 - 21.0 average return of the various indices of the underlying funds in Vanguard International Credit Securities Index Fund (Hedged) (Wholesale) 10.8 11.0 9.0 - 13.0 which it invests, in proportion to the Strategic Asset Allocation, Total income 50.0 50.0 48 - 52 before taking into account fees, expenses and tax. Total 100.0 100.0 Conservative Balanced Growth High Growth Fund overview

The Fund provides low-cost access to a range of sector funds, offering broad diversification across multiple asset classes. The Balanced Fund is designed for investors seeking a balance between income and capital growth. The Fund targets a 50% allocation to income asset classes and a 50% allocation to growth asset classes.  15.0 Australian Fixed Interest  35.0 International Fixed Interest (Hedged) Investor profile  20.0 Australian Shares  14.5 International Shares Investment horizon • Medium term investment horizon  9.0 International Shares (Hedged) Notes: • Seeking a balance between income and capital growth 1. On 2 December 2013 the fund began investing in accordance with a new Strategic Asset Allocation.  3.5 International Small Companies Short Long potential.  3.0 Emerging Markets

For more information: Risk tolerance Our telephone service is available from 8am to 6pm, Monday-Friday AEST. Low High For personal investors: For advisers: For institutional investors: Call 1300 655 101 Call 1300 655 205 Call 1300 655 102 Email [email protected] Email [email protected] Email [email protected] Investment goal

9 Fact sheet | 31 March 2017

Vanguard Growth Index Fund

Asset allocation1 (%) Fund Target Range Vanguard Growth Index Fund Growth assets Vanguard Australian Shares Index Fund (Wholesale) 31.2 31.0 29.0 - 33.0 Vanguard International Shares Index Fund (Wholesale) 23.7 24.0 22.0 - 26.0 Risk profile Target asset allocation: where your money is Vanguard Australian Property Securities Index Fund (Wholesale) 4.0 4.0 2.0 - 6.0 invested Vanguard International Property Securities Index Fund (Hedged) (Wholesale) 4.0 4.0 2.0 - 6.0 30% income, 70% growth. Vanguard Emerging Markets Shares Index Fund (Wholesale) 3.8 3.5 1.5 - 5.5 Vanguard International Small Companies Index Fund (Wholesale) 3.3 3.5 1.5 - 5.5 Total growth 70.0 70.0 68 - 72 Investment objective Income assets Vanguard Australian Fixed Interest Index Fund (Wholesale) 11.9 12.0 10.0 - 14.0 The Vanguard Growth Index Fund seeks to track the weighted Vanguard International Fixed Interest Index Fund (Hedged) (Wholesale) 11.6 12.0 10.0 - 14.0 average return of the various indices of the underlying funds in Vanguard International Credit Securities Index Fund (Hedged) (Wholesale) 6.5 6.0 4.0 - 8.0 which it invests, in proportion to the strategic asset allocation, Total income 30.0 30.0 28 - 32 before taking into account fees, expenses and tax. Total 100.0 100.0 Conservative Balanced Growth High Growth Fund overview

The Fund provides low-cost access to a range of sector funds, offering broad diversification across multiple asset classes. The Growth Fund is biased towards growth assets, and is designed for investors seeking long-term capital growth. The Fund targets a 30% allocation to income asset classes and a 70% allocation to growth asset classes.  9.0 Australian Fixed Interest  21.0 International Fixed Interest (Hedged) Investor profile  28.0 Australian Shares  20.5 International Shares •Investment Buy and horizon hold  12.5 International Shares (Hedged) Notes: • Seeking long-term capital growth  5.0 International Small Companies 1. On 2 December 2013 the fund began investing in accordance with a new Strategic Asset Allocation. •Short Looking to reduce volatility using diversificationLong benefits of  4.0 Emerging Markets fixed income For more information: Risk tolerance Our telephone service is available from 8am to 6pm, Monday-Friday AEST. Low High For personal investors: For advisers: For institutional investors: Call 1300 655 101 Call 1300 655 205 Call 1300 655 102 Email [email protected] Email [email protected] Email [email protected] Investment goal

10 Fact sheet | 31 March 2017

Vanguard High Growth Index Fund

Asset allocation1 (%) Fund Target Range Vanguard High Growth Index Fund Growth assets Vanguard Australian Shares Index Fund (Wholesale) 39.8 40.0 38.0 - 42.0 Vanguard International Shares Index Fund (Wholesale) 30.7 31.0 29.0 - 33.0 Risk profile Target asset allocation: where your money is Vanguard International Property Securities Index Fund (Hedged) (Wholesale) 5.1 5.0 3.0 - 7.0 invested Vanguard Australian Property Securities Index Fund (Wholesale) 4.9 5.0 3.0 - 7.0 10% income, 90% growth. Vanguard Emerging Markets Shares Index Fund (Wholesale) 4.5 4.5 2.5 - 6.5 Vanguard International Small Companies Index Fund (Wholesale) 4.4 4.5 2.5 - 6.5 Investment objective Total growth 89.4 90.0 88 - 92 Income assets The Vanguard High Growth Index Fund seeks to track the Vanguard International Fixed Interest Index Fund (Hedged) (Wholesale) 4.3 4.0 2.0 - 6.0 Vanguard Australian Fixed Interest Index Fund (Wholesale) 4.0 4.0 2.0 - 6.0 weighted average return of the various indices of the underlying Vanguard International Credit Securities Index Fund (Hedged) (Wholesale) 2.3 2.0 0.0 - 4.0 funds in which it invests, in proportion to the strategic asset Total income 10.6 10.0 8 - 12 allocation, before taking into account fees, expenses and tax. Total 100.0Conservative 100.0 Balanced Growth High Growth Fund overview

The Fund provides low-cost access to a range of sector funds, offering broad diversification across multiple asset classes. The High Growth Fund invests mainly in growth assets, and is designed for investors with a high tolerance for risk who are seeking long-term capital growth. The Fund targets a 10% allocation to income asset classes and a 90% allocation to  3.0 Australian Fixed Interest growth asset classes.  7.0 International Fixed Interest (Hedged)  36.0 Australian Shares Investor profile  26.5 International Shares  16.0 International Shares (Hedged) Notes: •Investment Buy and horizon hold  6.5 International Small Companies 1. On 2 December 2013 the fund began investing in accordance with a new Strategic Asset Allocation. • Seeking long-term capital growth  5.0 Emerging Markets •Short Higher tolerance for risk associated with share Longmarket For more information: volatility Our telephone service is available from 8am to 6pm, Monday-Friday AEST. Risk tolerance

For personal investors: For advisers: For institutional investors: Call 1300 655 101 Call 1300 655 205 Call 1300 655 102 Low High Email [email protected] Email [email protected] Email [email protected] Investment goal Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken your circumstances into account when preparing the above information so it may not be applicable to your circumstances. You should consider your circumstances and our Product Disclosure Statement (PDS) before making any investment decision. You can access our PDS on our website or by calling us. This information was prepared in good faith and we accept no Capital protection Capital growth liability for any errors or omissions. Unless otherwise stated, all currencies shown in this document are in Australian dollars. The funds or securities referred to herein are not sponsored, endorsed, or promoted by MSCI, and MSCI bears no liability with respect to any such funds or securities. The PDS contains a more detailed description of the limited relationship MSCI has with Vanguard and any related funds. S&P® is a registered trademark of Standard & Poor’s Financial Services LLC (“S&P”) and ASX is a registered trademark of ASX Operations Pty Limited (“ASX”) and such marks have been licensed for use by S&P Dow Jones Indices LLC and its affiliates and sublicensed for certain purposes by The Vanguard Group, Inc. The index is a product of S&P Dow Jones Indices LLC and has been licensed for use by Vanguard Investments Australia. The fund is not sponsored, endorsed, sold or promoted by S&P Dow Jones Indices LLC, S&P, ASX or their respective affiliates, and none of S&P Dow Jones Indices LLC, S&P, ASX nor their respective affiliates makes any representation regarding the advisability of investing in such product. All rights in the Index vest in FTSE International Limited (“FTSE”) and The Association of Superannuation Funds of Australia (“ASFA”). “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE under licence. “ASFA™”is a trade mark of ASFA. The fund (the 'Product') has been developed solely by Vanguard. For the most up to The Index is calculated by FTSE or its agent. FTSE and its licensors are not connected to and do not sponsor, advise, recommend, endorse or promote the Product and do not accept any liability whatsoever to any person arising out of (a) the use of, reliance on or any error in the Index or (b) investment in or operation of the Product. FTSE date information and performance data about makes no claim, prediction, warranty or representation either as to the results to be obtained from the Product or the suitability of the Index for the purpose to which it is For the most up-to-date being put by Vanguard. thisfund fund, data, pleaseplease scan scan the Bloomberg Finance L.P. and its affiliates (collectively, “Bloomberg”) are not affiliated with Vanguard and do not approve, endorse, review, or recommend the fund. QRthe QRcode code below. below BLOOMBERG and the index are trademarks or service marks of Bloomberg and have been licensed to Vanguard. Bloomberg does not guarantee the timeliness, accurateness, or completeness of any data or information relating to the index. The Products are not sponsored, endorsed, sold or promoted by Barclays Capital Inc. or its affiliates (“Barclays”). Barclays does not make any representation regarding the advisability of investing in the Products or the advisability of investing in securities generally. Barclays’ only relationship with Vanguard is the licensing of the Index which is determined, composed and calculated by Barclays without regard to Vanguard or the Products. Barclays has no obligation to take the needs of Vanguard or the owners of the Products into consideration in determining, composing or calculating the Index. Barclays has no obligation or liability in connection with administration, marketing or trading of the Products. © 2017 Vanguard Investments Australia, All rights reserved. 8134_032017

11 About the Vanguard Capital Markets Model

IMPORTANT: The projections or other information generated by the Vanguard Capital Markets Model regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. VCMM results will vary with each use and over time.

The VCMM projections are based on a statistical analysis of historical data. Future returns may behave differently from the historical patterns captured in the VCMM. More important, the VCMM may be underestimating extreme negative scenarios unobserved in the historical period on which the model estimation is based.

The Vanguard Capital Markets Model is a proprietary financial simulation tool developed and maintained by Vanguard’s Investment Strategy Group. The model forecasts distributions of future returns for a wide array of broad asset classes. Those asset classes include Australian and international equity markets, several maturities of the Australian Treasury and corporate fixed income markets, international fixed income markets, money markets, commodities, and certain alternative investment strategies. The theoretical and empirical foundation for the Vanguard Capital Markets Model is that the returns of various asset classes reflect the compensation investors require for bearing different types of systematic risk (beta). At the core of the model are estimates of the dynamic statistical relationship between risk factors and asset returns, obtained from statistical analysis based on available monthly financial and economic data from as early as 1960. Using a system of estimated equations, the model then applies a Monte Carlo simulation method to project the estimated interrelationships among risk factors and asset classes as well as uncertainty and randomness over time. The model generates a large set of simulated outcomes for each asset class over several time horizons. Forecasts are obtained by computing measures of central tendency in these simulations. Results produced by the tool will vary with each use and over time.

The primary value of the VCMM is in its application to analysing potential client portfolios. VCMM asset-class forecasts—comprising distributions of expected returns, volatilities, and correlations—are key to the evaluation of potential downside risks, various risk– return trade-offs, and diversification benefits of various asset classes.

Although central tendencies are generated in any return distribution, Vanguard stresses that focusing on the full range of potential outcomes for the assets considered, such as the data presented in this paper, is the most effective way to use VCMM output.

The VCMM seeks to represent the uncertainty in the forecast by generating a wide range of potential outcomes. It is important to recognise that the VCMM does not impose “normality” on the return distributions, but rather is influenced by the so-called fat tails and skewness in the empirical distribution of modelled asset class returns. Within the range of outcomes, individual experiences can be quite different, underscoring the varied nature of potential future paths. Indeed, this is a key reason why we approach asset-return outlooks in a distributional framework.

Connect with Vanguard™ > vanguard.com.au > 1300 655 205

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours or your client’s circumstances into account when preparing the information so it may not be applicable to the particular situation you are considering. You should consider yours or your client’s circumstances and our Product Disclosure Statements (“PDSs”) before making any investment decision. You can access our PDSs at vanguard.com.au or by calling 1300 655 205. Past performance is not an indication of future performance. This publication was prepared in good faith and we accept no liability for any errors or omissions.