Standard Risk Measure (SRM) for super investment options.

The Standard Risk Measure is based on industry guidance to allow members to compare investment options that are expected to deliver a similar number of negative annual returns over any 20 year period.

The Standard Risk Measure is not a complete assessment of all forms of investment risk, for instance it does not detail what the size of a negative return could be or the potential for a positive return to be less than a member may require to meet their objectives. Further, it does not take into account the impact of administration fees and tax on the likelihood of a negative return.

Members should still ensure they are comfortable with the risks and potential losses associated with their chosen investment options.

Standard Risk Measure Methodology

The Standard Risk Measure for investment options is based on the 'estimated number of negative annual returns over any 20 year period'.

Risk bands of the Standard Risk Measures

Risk Band

Risk Label

Estimated number of negative annual returns over any 20 year period

Very Low

Less than 0.5

Low

0.5 to less than 1

Low to Medium

1 to less than 2

Medium

2 to less than 3

Medium to High

3 to less than 4

High

4 to less than 6

Very High

6 or greater

The calculation is based on FSC/ASFA Standard Risk Measure Guidance Paper for Trustees, July 2011

No adjustment has been made for the impact of active investment management.

BT has engaged the services of Lonsec to supply the SRMs across our full suite of superannuation funds.

Lonsec Methodology

The cornerstone of the Lonsec Standard Risk Measure (SRM) model is the Lonsec long term asset class assumptions, which are reviewed annually. The assumptions used include the expected asset class returns and volatilities, cross correlations between asset classes, as well as long term inflation, GDP, and wage growth forecast. While these assumptions focus on the longer term (10 years+) horizon, the process does take into consideration the current market environment in determining these long term forecasts. Special attention was given to the treatment of fees in accordance with the APRA recommendation, where SRM should be calculated gross of administration fees but net of investment management fees. While Lonsec believes any ‘alpha’ generated from active management is more than sufficient to cover the investment management fees, inevitably the ‘passive’ component of investment management fees charged by managers are generally non-recoverable (in the absence of alpha). With that view, Lonsec applied a small ‘passive’ investment management fee to the long term asset class returns forecast, assuming any ‘alpha’ generated from active management will be offset by the ‘active’ investment management fees charged by the active managers.

For the purposes of the model, asset class assumptions are defined as the expected return and volatilities of passive strategies within each asset class, i.e. market benchmarks.

Single-asset strategies

The model determines the expected return and volatility of any single-asset strategy by identifying its historical market exposure and the volatility differential between the strategy and the market benchmark. The model computes the probability of negative returns in any one year by assuming a normally distributed probability function on the expected monthly returns and volatilities of these strategies. These were in-turn translated into an estimated number of negative annual returns over any 20 year period. For strategies that have the ability to invest into various sub-asset classes, or those that vary their sub-asset class allocations from time to time, the model determines a single (or multiple) market benchmark(s) which best reflected the historical return volatility profile of the strategies.

Multi-asset strategies

The model conducts a series of forward looking Monte Carlo simulations (50,000 scenarios) of multi-asset strategies based on their neutral asset allocation, and the expected return and volatility assumptions of the underlying market benchmarks. The model observes the number of negative annual returns within the simulation outputs to determine the probability of negative returns in any one year. Multiplying this by 20 to derive the estimated number of negative annual returns over any 20 year period. For strategies without a neutral asset allocation, the model determines the SRM based on their stated investment objectives, and where they would fit within the risk-return framework amongst other multi-asset strategies.

View the latest Standard Risk Measure for Investment Option(s) in your product(s)

BT Super for Life and BT Super

Investment Option

Risk Band - Standard Risk Measure

1940s Lifestage

3

1950s Lifestage

3

1960s Lifestage

5

1970s Lifestage

6

1980s Lifestage

6

1990s Lifestage

6

2000s Lifestage

6

Active Defensive

3

Active Moderate

5

Active Balanced

5

Active Growth

6

Active High Growth

6

Index Defensive

3

Index Moderate

5

Index Balanced

5

Index Growth

6

Index High Growth

6

Active Australian Shares

6

Active International Shares

7

Active Global Property

7

Active Global Fixed Interest

4

Cash

1

Index Australian Shares

6

Index International Shares

7

Index Property Securities

6

Index Australian Fixed Interest

4

Index International Fixed Interest

4

Antipodes Global

6

Pendal Technology

7

Pendal Core Australian Shares

6

Pendal Growth Shares

6

Fidelity Australian Shares

6

Magellan Global Shares

6

Nikko AM Value Australian Shares

6

T. Rowe Price Global Shares

6

APN AREIT

7

Pendal Australian Property Securities

6

Pendal Global Property Securities

7

RARE Value Infrastructure (Unhedged)

7

Pendal Australian Bonds

4

Franklin Templeton Multisector Bonds

6

PIMCO International Bonds

5

UBS Australian Bonds

4

Pendal Sustainable Conservative

3

Pendal Sustainable Balanced

5