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Balanced (Mysuper) Investment Option Quarter Ending 30 September 2017

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ADVISER Balanced (MySuper) investment option Quarter ending 30 September 2017 This option invests in a wide range of assets, with a higher allocation to shares, infrastructure and property than fixed interest and cash. It’s designed for members seeking medium to long-term growth who are willing to accept short-term fluctuations in returns. Investment objective To outperform (after fees and taxes) the return of the median balanced fund, and an average annual return of CPI + 4% over the medium to long term. Strategic asset allocation (SAA) 2016/17 Actual asset allocation (AAA) 30 September 2017 Asset class SAA % Range % Asset class AAA % Australian shares 25 10–45 Australian shares 27.4 International shares 34 10–45 International shares 34.0 Direct property 7 0–30 Direct property 7.6 Infrastructure 13 0–30 Infrastructure 11.9 Private equity 3 0–10 Private equity 3.2 Credit* 6 0–20 Credit* 5.9 Fixed interest 2 0–25 Fixed interest 3.0 Cash 10 0–15 Cash 7.0 Australian shares Australian shares International shares International shares Direct property Direct property Infrastructure Infrastructure Private equity Private equity Credit Credit Fixed interest Fixed interest Cash Cash Investment costs Investment costs include investment management, custodian and asset consultant fees. They are calculated in arrears as at 30 June each year. Financial year ending 30 June 2017 Investment management fees Performance related fees Transactional and operational costs Total 0.54% 0.13% 0.08% 0.75% These are the costs of the accumulation option. Higher fees applied for the Choice Income option in the year ended 30 June 2017. * Previously credit was included in the fixed interest allocation. We now treat it as a different asset class due to its different risk and return characteristics Fixed interest invests in government-issued debt securities and high quality corporate bonds. Returns are driven principally by the interest rate cycles in the countries where we invest. Credit invests in debt securities and loans that have a higher risk return and profile. Returns are driven principally by economic growth and the quality of the underlying collateral. page 1 of 4 Top 20 managers* Top 20 international † At 30 September 2017 share holdings Manager Asset classes % At 30 September 2017 AustralianSuper Australian shares 9.61 Stock Country Portfolio weight % IFM Investors Australian shares 8.16 Tencent Holdings Ltd Hong Kong 1.97 IFM Investors Cash 7.13 Facebook Inc United States 1.86 IFM Investors Infrastructure 5.98 Baidu Inc United States 1.82 AustralianSuper Infrastructure 5.79 Amazon.com Inc United States 1.67 Baillie Gifford International shares 4.58 Alphabet Inc United States 1.65 AustralianSuper International shares 4.13 Alibaba Group Holding United States 1.59 MFS International shares 4.07 Thermo Fisher Scient United States 1.40 Fidelity Australian shares 3.19 Oracle Corp United States 1.39 AustralianSuper Property 3.14 Diageo Plc Great Britain 1.38 Causeway International shares 2.92 Visa Inc United States 1.23 Orbis Global International shares 2.91 Tesla Inc United States 1.22 ISPT Property 2.75 Illumina Inc United States 1.21 Jackson Square International shares 2.38 British American Tobacco Great Britain 1.19 Independent Franchise Partners International shares 2.30 Citigroup Inc United States 1.18 AustralianSuper Private equity 2.24 Accenture Plc United States 1.18 Alphinity Australian shares 2.14 Microsoft Corp United States 1.09 Bentham Credit 2.10 Samsung Electronics South Korea 1.09 Harris International shares 2.05 Time Warner Inc United States 0.93 Airlie Funds Management Australian shares 1.51 Intuitive Surgical United States 0.88 Danone Sa France 0.87 Top 20 Australian share holdings† At 30 September 2017 Investment philosophy Stock Portfolio weight % and approach Commonwealth Bank Of Australia 7.99 AustralianSuper is committed to delivering consistent Westpac Banking Corp 7.24 investment returns over the medium to longer term, with an overriding objective of maximising the retirement ANZ Bank 6.44 benefits of members within the risk framework of each National Australia Bank 5.00 investment option. Bhp Billiton Ltd 4.41 The Fund’s investment philosophy is one of active CSL Ltd 4.17 management of the portfolio through a mix of investment styles. This is reflected in a number of ways, including: Wesfarmers Ltd 3.57 › regular review of asset allocation Woolworths Ltd 2.63 › reviewing and monitoring investment managers Rio Tinto Ltd 2.52 › monitoring market developments Macquarie Group Ltd 2.43 › monitoring new investment instruments and products, Telstra Corp Ltd 1.99 and Suncorp Group Ltd 1.79 › focusing on the net return to members. Transurban Group 1.67 The Fund also seeks to enhance members’ returns by Sydney Airport 1.42 controlling the cost of investing. This is achieved by Healthscope Ltd% 1.25 negotiating competitive fees with investment managers and other service providers, shifting some investment Insurance Australia 1.25 portfolios and services to the Fund’s internal management AMP Ltd 1.23 capabilities and actively managing the tax paid by the Fund. Woodside Petroleum 1.22 The Investment Committee is accountable to the Trustee Link Administration 1.19 Board for the investment policy and strategy of the Fund and for overseeing investment decisions, including any QBE Insurance Group 0.99 matters referred to it by the Trustee Board. It meets eight times a year or more frequently when required. * by percentage of funds under management for this option. † by percentage of funds under management for this sector. page 2 of 4 The internal Investment team, headed by Chief Investment The property team has also undertaken a number of large Officer (CIO) Mark Delaney, advises the Investment direct investments that have saved costs, and in the process Committee on investment matters. The team is responsible have established partnerships in the US, UK and Europe, for research and portfolio management, monitoring as well as Australia. These partnerships help us identify investment managers and preparing input for asset opportunities and manage the day-to-day running of allocation discussions, and works closely with the appointed direct acquisitions. asset consultants. The next phase will see internal capabilities expanded to cover international equities, direct loans and credit Investment style and process instruments. The Investment Committee retains responsibility for AustralianSuper has a well-defined investment decision approving establishment and any changes to the funding making process, which governs the activities and interaction allocation of internal portfolios. between the Trustee Board, Investment Committee, in house Investment Team and the two principal external asset consultants, Frontier and JANA. Strategic asset allocation AustralianSuper employs a hybrid investment approach The Board approves the strategic asset allocation (SAA) to manage each asset class, which seeks to combine the and asset allocation ranges for each investment option best of both internal management capabilities and external annually, following a review by the Investment Committee, expert investment managers globally. The investment internal team and Asset Consultants. process has four key stages. All major decisions go through The SAA serves as a guide for the allocation of new funds internal review prior to the Investment Committee. received into each investment option but is adjusted by tactical decisions, for the allocation of cash flows. We do AustralianSuper’s investment decision making process not automatically rebalance the investment options back to the SAA. Trustee Board The Investment Committee reviews the asset allocation at each of its scheduled meetings and sets ranges within each asset allocation. Papers are prepared by the Fund’s two Investment Committee principal asset consultants, Frontier and JANA, and by the internal team for the Investment Committee, who review a Asset range of factors which influence the portfolio strategy. This Consultants includes current economic conditions, the market outlook, Investment Department and the amount and allocation risk across the portfolio. With the approved ranges from the Investment Committee, External Fund Managers day-to-day decisions on the short-term asset allocation strategy draw on research performed by the internal investment team. External asset consultants Currency AustralianSuper has two external asset consultants, Currency hedging can protect portfolios with international Frontier Advisors and JANA Investment Advisers. Both assets from adverse movements in exchange rates. It provide strategic advice and specific research on asset involves converting a percentage of the value of a portfolio’s classes. They also provide input to strategic and active international assets into Australian dollars. When we set asset allocation decisions. our strategic asset allocations every year we set a target currency exposure for each investment option that includes Internal investment management international assets. Target currency Actual exposure With the rapid growth of AustralianSuper over recent years, Investment option exposure 2016/17 30 September 2017 it makes better sense for us to bring investment expertise in-house. While providing more input into and control over Balanced option 23% 22.91 investment decisions, it also reduces our costs and reliance on external consultants and managers. The biggest benefit These are the targets and exposures for the accumulation of this being lower costs
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