Types of assets
There are two major types of assets that make up the building blocks of an investment: growth assets and defensive assets.
Growth assets, including shares and property, earn income from dividends or rent and increase in value from capital gains. Capital gain is the rise in asset value, which means that the total value of these investments can actually grow in the long term. However, the total value of these assets can be volatile meaning they can rise and fall dramatically in the short term. For example, you may have noticed how the share price for a company can vary dramatically each day.
Shares represent ownership in a company and are often referred to in investment terms as 'equity'. Generally they can be bought and sold on the stock exchange and offer the opportunity for high returns, but also the potential for high risk.
A property investment can provide rental income and the prospect of growth in value over time. The three main areas of property investment are commercial property (eg office buildings), retail property (eg shopping centres) and industrial property (eg factories). You can also invest in property trusts, which are made up of many smaller investors who pool their funds to enjoy the same benefits as a single large investor.
Private equity are investments in predominantly unlisted companies through a negotiated process. The money invested is generally used to expand or develop the business. Private equities present opportunities to invest in undervalued businesses and this may create higher returns than investments in listed companies but come with a higher level of risk. A return on your investment is received when a private equity manager sells or revalues a business they have invested in.
Roads, bridges, power stations and water supply are infrastructure items that form the groundwork for economic production. Infrastructure investment can be accessed through listed managers or unlisted managers and provide relatively stable cash flows, offering long-term capital growth.
Hedge funds are managed funds that trade securities with the aim of generating ‘absolute’ returns to investors in both a rising and falling market. Hedge funds provide the potential for stable and consistent returns and acceptable levels of volatility.
Investment in Opportunities allows the ability to capitalise on one-off market opportunities as they arise. These investments are not directly aligned with one specific asset class and generally offer a return in the form of interest, however in times of a market downturn they may also offer some potential capital growth. Examples of this could include structured credit, highyield corporate bonds or bank loans.
Defensive assets, including fixed interest and cash, earn returns primarily from interest. This means that defensive assets usually provide lower risks due to fixed repayments, but returns are also likely to be lower over the long term. For example, when you put some money aside in a term deposit with a bank, you may not be getting the highest interest rate around but you do know that, after a fixed period, the bank will pay you a predetermined interest rate and return your investment amount.
Other assets such as infrastructure can also be classified as defensive assets when the underlying mature infrastructure assets generate stable (and often regulated) long term income streams for investors. These returns are considered a lower investment risk compared to investing in early stage infrastructure projects encompassing the development phase of the infrastructure assets.
Fixed interest can be bonds and other debt securities issued by a government or corporation. Credit (as explained below) forms a significant part of this asset class. If you invest in fixed interest, you lend money to the issuer who promises to make regular interest payments with full repayment on an agreed date in the future.
Credit is issued by both domestic and international corporations in the form of bonds that carry a rating from the credit rating agencies. The primary focus of credit is to gain exposure to investment grade bonds although holding below investment grade bonds is permitted in limited circumstances. Credit forms a significant part of the Defensive Growth option.
A cash investment usually takes the form of a short term deposit with a bank, cash management trust, merchant bank or fund manager. In return, you will receive interest on your investment.
Investment in Opportunities allows the ability to capitalise on one-off market opportunities as they arise. These investments are not directly aligned with one specific asset class and generally offer a return in the form of interest, however in times of a market downturn they may also offer home potential capital growth. Examples of this could include structured credit, highyield corporate bonds or bank loans.
Telstra Super’s investment options
Telstra Super offers investment options that invest in both growth and defensive assets in varying percentages. Depending on the type and portion of growth or defensive assets, the level of risk of each investment option varies. For more information about Telstra Super’s investment options check out our investment option pages.