Your investment options explained

Transcription

1 Your investment options explained for the BHP Billiton Superannuation Fund (Fund) Pension Division Issued by the Trustee: PFS Nominees Pty Ltd ABN AFSL Fund: BHP Billiton Superannuation Fund ABN Administrator: Plum Financial Services Limited (Plum) ABN AFSL Level 4, 500 Bourke Street Melbourne Vic 3000 GPO Box 63 Melbourne Vic 3001 Telephone Fax Web superau.bhpbilliton.com Preparation date: 11 May 2016

2 Contents What this guide covers Things to consider 1 before you invest Before you do any investing, we want you to know about both the benefits and potential risks involved. (page 1) Our investments 2 We provide a broad range of investment options and you can choose any one or more of these options across each of our investment paths. (page 10) Choosing your 3 investment strategy and switching your investments Find out how to change your investment strategy or make an investment switch. (page 17) Investment option 4 costs There are costs associated with your investments. (page 18) The information in this guide forms part of the Product disclosure statement (PDS) for the BHP Billiton Superannuation Fund. This document should be considered before making a final decision to invest. Important information This guide provides information about the available investment options under the Fund and is not personal investment advice nor should it be used or relied upon as a substitute for professional investment advice. We do not recommend that any member make decisions based solely on the information contained in this guide and each member is ultimately responsible for making his or her own investment decisions and obtaining whatever assistance he or she deems necessary. Any advice in this guide has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on any information in this guide, consider whether it is appropriate to your objectives, financial situation and needs and seek professional financial advice before you decide to invest in the Fund. The information contained within this guide is current at the time it was prepared. However, changes to the information may subsequently occur. If there is a materially adverse change to information contained in this guide, we will issue a replacement guide and advise members of the Fund in writing.

3 Things to consider before you invest Before you do any investing, we want you to know about both the benefits and potential risks involved. Even the simplest of investments come with a level of risk. While the idea of investment risk can be confronting, it s a normal part of investing. Without it you may not get the returns you need to reach your financial goals. This is known as the risk/return trade-off. The value of an investment with a higher level of risk will tend to rise and fall more often and by greater amounts. In other words, it is likely to be more volatile than those with less risk. Many factors influence an investment s value. These include, but aren t limited to: market sentiment; growth and contraction in the Australian and overseas economies; legislative changes; changes in interest rates; defaults on loans; company specific issues; liquidity (the ability to buy or sell investments when you want to); and changes in the value of the Australian dollar. Consider your investor profile Understanding your investor profile may help you choose an investment mix that suits your needs. For more information about investor profiles, refer to the Five steps to making your investment choice booklet available from the Forms and publications section of the member website at superau.bhpbilliton.com Investor profile tools Updated information about our investment options, such as asset allocations, performance and investment commentary, is available at superau.bhpbilliton.com or call The Fund is administered by Plum, which is responsible for more than $26 billion of funds under management (as at 31 March 2015) invested on behalf of over 210,000 individuals and employees of many of Australia s largest organisations. Plum and the Trustee are part of the MLC group of companies, the wealth management division of the National Australia Bank. 1

4 Things to consider before you invest As demonstrated in the graphs below, investments that have often produced higher returns over long periods can be volatile in the short term. 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% Investments that have often produced higher returns over long periods... Returns above inflation over 20 year periods ( ) By understanding volatility will occur, you ll be able to manage your expectations and resist reacting to these short-term movements. This will help you stay true to your investment strategy, and keep on track to achieve your long-term goals. Source: Graphs have been calculated by MLC using data presented in DMS Data Module offered through the Morningstar software program EnCorr. Based on copyrighted books by Dimson, Marsh, and Staunton, Triumph of the Optimists, Princeton University Press, 2002, and Global Investment Returns Yearbook 2003, ABN AMRO/London Business School All rights reserved. Used with permission % % p.a. 31 December Source: Calculated by MLC using data provided by Global Financial Data, Inc. and Thomson Reuters Datastream. can be volatile in the short term Returns above inflation over 1 year periods ( ) 80.0% 60.0% 40.0% % p.a. 20.0% 0.0% -20.0% -40.0% December Source: Calculated by MLC using data provided by Global Financial Data, Inc. and Thomson Reuters Datastream. Australian Shares Australian Fixed Interest Australian Cash 2

5 Things to consider before you invest Diversify to reduce volatility and other risks Portfolios can be diversified across types of investments, industries and countries as well as across investment managers with different approaches. Diversification is a sound way to reduce short-term volatility and smooth a portfolio s returns. That s because different types of investments perform well in different times and circumstances. When some are providing good returns, others may not be. So, the more you diversify the less impact any one investment can have on your portfolio. One of the most effective ways of reducing volatility is to diversify across a range of asset classes. Asset classes Asset classes are groups of similar types of investments. Each class has its risks and benefits and goes through its own market cycle. A market cycle can take a couple of years or many years; it s different each time. In the description of the investment options (from page 13), we include a minimum time to invest. Investing for the minimum time or longer improves your chances of achieving the return you expect. However, returns can t be guaranteed. You need to be prepared for all sorts of return outcomes when investing. Cash Cash is generally a low risk investment. Things to consider: The return is typically all income and is referred to as interest or yield. Cash is usually the least volatile type of investment. It also tends to have the lowest return over a market cycle. Many cash funds invest in fixed income securities that have a very short term until maturity. Cash tends to be included in a portfolio to meet liquidity needs and for its defensive characteristics. Fixed interest When investing in fixed interest, you re effectively lending money to businesses or governments. Things to consider: There are different types of fixed interest securities and these will have different returns and volatility. The market value of a fixed interest security may fall due to factors such as an increase in interest rates, defaults on loans or concern about defaults. This may result in a loss on your investment. The interest rate on a term deposit is fixed for its specified term. That means the return won t be affected be a change in interest rates for the term of the deposit. Fixed interest securities denominated in foreign currencies will be exposed to exchange rate variations. Fixed interest securities are usually included in a portfolio for their defensive characteristics. 3

6 Things to consider before you invest Property Investing in property securities will give your portfolio exposure to listed and unlisted property securities in Australia and around the world. Listed property securities are referred to as Real Estate Investment Trusts (REITs). Things to consider: Australian property securities are dominated by only a few REITs and provide limited diversification. Returns are driven by many factors including the economic environment in various countries. Investing outside Australia means you re exposed to exchange rate variations. Property securities may be volatile and are usually included in a portfolio for their income and growth characteristics. Australian shares This asset class consists of investments in companies listed on the Australian Securities Exchange (and other regulated exchanges). Shares are also known as equities. Things to consider: The Australian share market has recently been dominated by a few industries such as Financials and Resources. Australian shares can be volatile and are usually included in a portfolio for their growth characteristics. Australian shares may provide dividend income and tax advantages through imputation (franking) credits. International shares International shares consist of investments in companies listed on securities exchanges around the world. Things to consider: The number of potential investments is far greater than in Australian shares. Returns are driven by many factors including the economic environment in various countries. When you invest globally, you re less exposed to the risks associated with investing in just one economy. Investing outside Australia means you re exposed to exchange rate variations. International shares can be volatile and are usually included in a portfolio for their growth characteristics. Private markets These are investments in assets that aren t traded on listed exchanges. An example of this is an investment in a privately owned business. Things to consider: Private assets are usually included in a portfolio to provide higher returns than share markets in the long term, and to increase diversification. However, it can take years to earn a positive return from private assets. Returns are driven by many factors including the economic environment in various countries. Private assets are illiquid which makes them difficult to buy or sell. To access private assets you generally need to do so via a managed fund. Because private assets aren t listed on an exchange, determining their value for a fund s unit price can be difficult and may involve a considerable time lag. You may be exposed to exchange rate variations. Private assets can be volatile and are usually included in a portfolio for their growth characteristics. 4

7 Things to consider before you invest Alternatives These a are very diverse group of assets that aren t like traditional assets of cash, fixed interest or shares. Some examples include hedge funds, infrastructure, and gold. Things to consider: Alternative investments are usually included in portfolios to increase diversification and provide returns that aren t strongly linked with the performance of traditional assets. For some alternatives, such as hedge funds, it can be less obvious what assets you re investing in than with traditional assets. Some alternative assets are illiquid, which makes them difficult to buy or sell. To access some alternative investments you generally need to invest in a managed fund that, in turn, invests in alternatives. Because most alternative investments aren t listed on an exchange, determining their value for a fund s unit price can be difficult and may involve a considerable time lag. You may be exposed to exchange rate variations. Because alternatives are diverse they may be included in a portfolio for their defensive or growth characteristics. Growth and Defensive Assets Asset classes are generally grouped as either defensive or growth because of their different characteristics. Both defensive and growth assets are typically included in a diversified portfolio because they tend to respond differently to market conditions. For example, fixed interest is often included to provide returns at times when share markets are weak. The main differences between defensive and growth assets are: Assets classes include How they are generally used Risk and return characteristics Defensive Cash and fixed interest securities To generate an income, and stabilise returns Expected to produce lower returns and be less volatile over the long term Growth Shares and property securities To provide long term capital growth Expected to produce higher returns and be more volatile over the long term In some market conditions, it is possible for both defensive and growth assets to deliver low or negative returns. 5

8 Things to consider before you invest Investment techniques Investment managers use different investment techniques that can change the value of an investment. Derivatives Derivatives are an investment technique used in some investment options and are commonly used to enhance returns or manage risk. They are contracts that have a value derived from an external reference (eg the level of a share price index). There are many types of derivatives and they can be an invaluable tool for an investment manager. However, they can incur significant losses. The investment managers are not permitted to use financial derivatives to leverage the performance of the portfolio beyond that which could be obtained if derivatives were not used. The investment managers for our investment options may use derivatives to: reduce risk; reduce transaction costs; increase market exposure, as long as the total exposure is not greater than that possible if derivatives were not used; and reduce market exposure (i.e. short selling), as long as appropriate assets are held to offset the short exposure. Currency management Currency management is a technique to manage the impact of exchange rate movements. It s also known as hedging. For example, if an investment manager in Australia invests in assets in other countries, their returns in Australian dollars will be affected by movements in the exchange rates, as well as changes in the value of the assets. By hedging the currency exposure in Australian dollars, the investment manager can largely reduce the impact of the exchange rate movements. Gearing Gearing is another term for borrowing to invest. The borrowing can be achieved by using loans or derivatives. Gearing an investment magnifies exposure to potential gains and losses. As a result, you can expect larger fluctuations (both up and down) in the value of your investment compared to the same investment which is not geared. Short-selling Short-selling is used by an investment manager when it has a view that an asset s price will fall. The manager borrows the asset from a lender, usually a broker custodian, and sells it with the intention of buying it back at a lower price. If all goes to plan, a profit is made. However, if the price of the asset increases, then the loss could be significant. 6

9 Things to consider before you invest Investment management philosophies Indexing Index investment managers do not use traditional active management to outperform an index. They aim to match the index return of a particular asset class and incorporate broad diversification at low cost. Index managers do not generally employ high-cost processes (because they follow the index) and have very low transaction costs. Active Active investment managers change their mix of assets depending on current or expected market conditions. They review investments regularly to try to benefit from movements in the market or from growth in individual assets. Investment styles Below are details about the investment styles that active investment managers adopt when making investment decisions. Bottom-up (security selection) This is a form of stock or security analysis which focuses more on forecasting returns for individual companies rather than the economy as a whole (opposite of top-down). Top-down (macro view) This is a form of stock or security analysis which focuses more on forecasting broad (macro) economic trends and the effect on the market rather than forecasting returns for individual companies (opposite of bottom-up). Growth Growth investment managers are primarily interested in a company s earnings. They focus on investing in companies that they expect will earn higher profits and shareholder earnings than similar companies. Growth investment managers tend to be concerned with future performance and will most likely invest in companies with a good earnings outlook. They generally price stocks based on forward looking estimates. Value Value investment managers are most interested in buying companies stocks for a good price. They may purchase stocks of companies that they consider to be currently undervalued on the share market Value investment managers tend to be concerned with historical performance and will most likely invest in companies that have good track records. They generally price stocks based on historical data. Neutral/core These investment managers have no specific investment style bias. They aim to produce competitive returns throughout periods of value and growth. Ethical investing Investment managers may take into account labour standards, environmental, social or ethical considerations when making decisions to buy or sell investments. We expect our active investment managers to consider any material effect these factors may have on the returns from their investment, however we don t require them to. Want to know more? For more information on how you can grow and protect your wealth call us on and we ll put you in touch with a licensed financial adviser. 7

10 Things to consider before you invest Investment management approaches Each of the Fund s investment options has a single-manager or multimanager management approach. Single-manager Single-managers manage all or most investments themselves. They manage the underlying investments of options that have a particular investment philosophy and style. Multi-manager Multi-managers do not invest directly themselves but use a combination of external investment managers to manage investments on their behalf. They use investment managers with different styles to take advantage of diversification benefits. Standard risk measure Investment risk is one of the many issues that should be considered when making an investment decision. The Standard Risk Measure is a simple measure designed to help you compare investment risk across the investment options we offer in our menu. The Standard Risk Measure is the estimated number of negative annual returns in any 20 year period. However, the number of negative annual returns that occur within a 20 years may be different to our estimate. The Standard Risk Measure is not a complete assessment of investment risk. The Standard Risk Measure categories are based on industry guidelines. The risk categories are: For example: it doesn t capture the size of a possible negative return or the potential for sufficient positive returns to meet your objectives; and it doesn t take into account the impact of fees and taxes. These would increase the chance of a negative return. There are many ways you can assess the impact of risk on your investment strategy. You should make sure you re comfortable with the risks and potential losses associated with the investment options you choose. Risk band Risk label Estimate number of negative annual returns over any 20-year period 1 Very Low Less than Low 0.5 to less than 1 3 Low to medium 1 to less than 2 4 Medium 2 to less than 3 5 Medium to high 3 to less than 4 6 High 4 to less than 6 7 Very high 6 or greater Want to know more? For more information on how we calculate the Standard Risk Measure please go to superau.bhpbilliton.com 8

11 Things to consider before you invest How you can assess performance Consumer Price Index (CPI) The CPI (All Groups) is a measure of the price of goods and services and allows comparison of the relative cost of living over time. It is used as a measure of inflation. Benchmark Another way you can assess the performance of the investment options is against its market benchmark over the long term. Benchmarks are usually market indices that are publicly available. In the description of the investment options from page 13 we include the market benchmark for each option, other than those options which are multi-asset portfolios. Benchmarks for multi-asset portfolios may be made up of many indices to reflect the different asset classes they can invest in. When making this assessment, be aware that the market benchmark doesn t take into account investment fees and taxes that may apply. Ongoing review To make sure our investment options are working hard for our members, we use a detailed range of criteria for choosing and monitoring investments on an ongoing basis. This criteria includes regular internal and external reviews of investment manager costs, services, asset allocations, reporting and performance. Allocation of earnings Investment earnings (which may be positive or negative) are reflected in the unit price of your investment option(s) (so the price goes up with positive investment earnings and goes down if there are investment losses). The unit price for an investment option reflects the total dollars held in that investment option divided by the number of units issued. 9

12 Our investments We provide a broad range of investment options and you can choose any combination of these options. Our investment menu has been developed to suit all levels of investment knowledge and experience. You can customise your investment mix by choosing from a range of diversified or single-sector investment options with different management styles. Investment option advisor We have appointed JANA Investment Advisers Pty Ltd (JANA) to be our Investment Consultant. JANA is responsible for advising the Trustee on our entire investment menu, providing regular insight and updates on the performance of our investment options. JANA JANA is an Australian Financial Services Licence Holder and is a wholly owned subsidiary of National Australia Bank Limited (NAB). JANA Investment Advisers was established in 1987 with the objective of providing high quality independent advice to institutional clients on all aspects of investments and asset management. The firm has since grown to become one of the leading investment consultants in Australia, with over A$317 billion funds under advice and A$36 billion funds under management (at 31 May 2014). JANA s core business continues to be the provision of investment and asset consulting advice to institutional clients from its offices in Melbourne and Sydney. In December 2000, JANA became a fully-owned subsidiary of the NAB. JANA s investment philosophy can be summarised as follows: JANA believes it is possible to reduce risk and outperform over the long term by taking advantage of occasional large divergences from fair value in investment markets. Through diligent hands-on research it is possible to select managers capable of outperforming over the long term. While above-average ability in security selection is a prerequisite in most asset classes, managers must also exhibit a disciplined process and style and this should be reflected in the qualities and mindset of its personnel. To be of real value, research needs to be implemented with full commitment and not sit on the fence. 10

13 Our investments Diversified options There are five diversified investment options in the menu so you can select an expected risk and return profile to meet your needs. At the lower end of the risk and return potential is the Pension Conservative Option.This invests mainly in defensive assets such as fixed income and cash. At the higher end of the risk and return potential is the Pension Aggressive Option, which mainly gears its investment into growth assets such as shares. This comprehensive series of investment options means, wherever you are in life you can choose an investment solution to suit you. These options are actively managed and broadly diversified within asset classes, across asset classes and across underlying investment managers. Investing in a diversified option is an easy way to gain access to sophisticated investments. This way you can implement your financial plan with confidence. Sector specific options You can choose from a range of sector specific investment options. Sector specific investment options cater for people looking for a complete asset class solution. The sector specific investment options are managed on an active basis. We also offer the Pension Cash option which invests in deposits with banks and other comparable securities. You should have some understanding of investments, including the difference between the main asset classes, before selecting a sector specific investment option. The main asset classes are described on pages 3, 4 and 5. You should carefully consider the risks of investing your entire account balance in a sector specific investment option and whether this represents adequate diversification. For more information refer to the Diversify to reduce volatility and other risks section of this guide. 11

14 Diversified options Pension Conservative Option Pension Cautious Option Pension Moderate Option Investment objective To outperform the CPI plus 2% p.a. after investment fees and taxes over rolling 3 year periods. To outperform the CPI plus 2.5% p.a. after investment fees and taxes over rolling 3 year periods. To outperform the CPI plus 3% p.a. after investment fees and taxes over rolling 5 year periods. The investment option may be suited to you if You want to invest with a bias to defensive assets, with some exposure to growth assets. Preserving your capital is an important but not overriding concern. You want to invest in an approximately equal mix of defensive and growth assets. You want a portfolio with some long-term capital growth potential and can tolerate moderate changes in value. You want to invest with a bias to growth assets. You want a portfolio with a bias towards long-term capital growth potential and can tolerate moderate to large changes in value. Neutral allocation as at 30 June 2015 Cash 10% Fixed interest 59% Defensive alternatives 1% Defensive 70% Property 2% Australian shares 9% International shares 14% Growth alternatives 5% Growth 30% Fixed interest 49% Defensive alternatives 1% Defensive 50% Property 3% Australian shares 20% International shares 19% Growth alternatives 8% Growth 50% Fixed interest 29% Defensive alternatives 1% Defensive 30% Property 4% Australian shares 31% International shares 25% Growth alternatives 10% Growth 70% We may adjust the allocation within these ranges Defensive 65-75% Growth 25-35% Defensive 45-55% Growth 45-55% Defensive 25-35% Growth 65-75% Estimated number of negative annual returns Medium, Approximately 3 years in 20 Medium, Approximately 3 years in 20 High, Approximately 4 years in 20 Minimum suggested time to invest 3 years 5 years 6 years Indicative investment fee %p.a. Management fee (% p.a.) 0.35 Estimated Performance fee (% p.a.) 0.00 Indicative investment fee (% p.a.) 0.35 Estimated indirect cost ratio %p.a. Transaction cost Buy/Sell spread ongoing % Management fee (% p.a.) 0.38 Estimated Performance fee (% p.a.) 0.00 Indicative investment fee (% p.a.) / / / 0.00 Management fee (% p.a.) 0.45 Estimated Performance fee (% p.a.) 0.00 Indicative investment fee (% p.a.)

15 Diversified options Investment objective The investment option may be suited to you if Neutral allocation as at 30 June 2015 Pension Assertive Option To outperform the CPI plus 3.5% p.a. after investment fees and taxes over rolling 5 year periods. You want to invest with a strong bias to growth assets. You want a portfolio with a strong bias towards long-term capital growth potential and can tolerate moderate to large changes in value. Fixed interest 14% Defensive alternatives 1% Defensive 15% Property 3% Australian shares 35% International shares 36.5% Growth alternatives 10.5% Growth 85% Pension Aggressive Option To outperform the CPI plus 4% p.a. after investment fees and taxes over rolling 5 year periods. You want to invest with a strong bias to growth assets. You want a portfolio with a strong bias towards long-term capital growth potential and can tolerate moderate to large changes in value. Property 3% Australian shares 39% International shares 46% Growth alternatives 12% Growth 100% We may adjust the allocation within these ranges Estimated number of negative annual returns Defensive 10-20% Growth 80-90% High, Between 4 and 5 years in 20 Defensive 0-5% Growth % High, Approximately 5 years in 20 Minimum suggested time to invest 7 years 7 years Indicative investment fee %p.a. Management fee (%p.a.) 0.44 Estimated performance fee (%p.a.) 0.01 Indicative investment fee (%p.a.) 0.45 Management fee (%p.a.) 0.52 Estimated performance fee (%p.a.) 0.01 Indicative investment fee (%p.a.) 0.53 Estimated indirect cost ratio %p.a. Transaction cost Buy/Sell spread ongoing % / /

16 Sector specific options Pension Cash Option Pension Australian Shares Option Pension Global Shares (unhedged) Option Investment objective To outperform the Reserve Bank of Australia s Cash Rate Target over rolling 1 years before fees and taxes. To outperform the S&P/ASX 300 Accumulation Index over rolling 5 years before fees and taxes. To outperform the MSCI All Country World Index (net dividends reinvested) over rolling 5 years before fees and taxes. The investment option may be suited to you if You want to invest in a low risk cash portfolio. You want to invest in an Australian share portfolio that s diversified across investment managers, industries and companies. You want to invest in a global share portfolio that s diversified across investment managers, countries (developed and emerging), industries and companies. You re comfortable having foreign currency exposure. Neutral allocation as at 30 June % Cash 100% Australian shares 100% International shares Market benchmark Reserve Bank of Australia s Cash Rate Target S&P/ASX 300 Accumulation Index MSCI All Country World Index (net dividends reinvested) Estimated number of negative annual returns Low, Less than 1 year in 20 High, Between 5 and 6 years in 20 High, Between 5 and 6 years in 20 Minimum suggested time to invest No minimum 7 years 7 years Indicative investment fee %p.a Management fee (% p.a.) 0.48 Estimated performance fee (% p.a.) 0.06 Indicative investment fee (% p.a.) Estimated indirect cost ratio %p.a. Transaction cost Buy/Sell spread ongoing % n.a. n.a. n.a / / /

17 Sector specific options Investment objective The investment option may be suited to you if Pension Global Shares (hedged) Option To outperform the MSCI All Country World Index (net dividends reinvested, hedged into Australian dollars) over rolling 5 years before fees and taxes. You want to invest in a global share portfolio that s diversified across investment managers, countries (developed and emerging), industries and companies. You do not want foreign currency exposure. Pension Property Option To outperform the composite benchmark of 75% of the S&P/ASX 300 A-REIT Accumulation Index and 25% of the FTSE EPRA/NAREIT Global Developed Index (hedged into Australian Dollars) over rolling 5 years before fees and taxes. You want to invest in an actively managed property securities portfolio that invests in Australia, with some global exposure, and diversifies across property sectors and REITs. Neutral allocation as at 30 June % International shares (hedged) 75% Australian listed property 25% International listed property Market benchmark Estimated number of negative annual returns MSCI All Country World Index (net dividends reinvested, hedged into Australian dollars) High, Between 5 and 6 years in 20 S&P/ASX 300 A-REIT Accumulation Index FTSE EPRA/NAREIT Global Developed Index (hedged into Australian Dollars) High, Between 5 and 6 years in 20 Minimum suggested time to invest 7 years 7 years Indicative investment fee %p.a Estimated indirect cost ratio %p.a. n.a. n.a. Transaction cost Buy/Sell spread ongoing % 0.15 / /

18 Sector specific options Pension Fixed Interest Option Investment objective The investment option may be suited to you if Neutral allocation as at 30 June 2015 To outperform the composite benchmark of 50% of the Bloomberg AusBond Composite Bond (All Maturities) Index and 50% of the Barclays Global Aggregate Index over rolling 3 years before fees and taxes. You want to invest in a defensive portfolio that s actively managed and diversified across investment managers, countries, bond sectors and securities. 50% Australian fixed interest 50% International fixed interest Market benchmark Estimated number of negative annual returns Minimum suggested time to invest Indicative investment fee %p.a Estimated indirect cost ratio %p.a. Transaction cost Buy/Sell spread ongoing % Bloomberg AusBond Composite Bond (All Maturities) Index Barclays Global Aggregate Bond Index (hedged into Australian dollars) Medium, Between 2 and 3 years in years n.a /

19 Choosing your investment strategy and switching your investments Investment strategy change If you want to select the investment option from which your payments are drawn, you can make an investment strategy change. On receipt and acceptance of an investment strategy change request on any business day, we will process pension payments from the relevant investment options as follows: requests received prior to 4.00pm, AEST will use the unit price applying at close of business on that day. requests received after 4.00pm, AEST will use the unit price applying at the close of business on the next business day. Investment switch If you want to move some or all of your existing account balance into one or more different investment options, you can make an investment switch. When you request a switch before 4pm, AEST time, on any business day: units in your current investment option(s) will be sold at the sell price for the day on which your request is processed; and the sale proceeds will be used to buy units in your new investment option(s) at the buy price for the same day. If we receive your request after 4.00pm AEST, we will use the unit price applying at the close of business on the next business day. Although you can generally make an investment switch at any time, you will need to wait until your first switch is processed and units have been allocated before you can request a second switch. No administration fee is charged when you make an investment strategy change or switch. You may, however, incur transaction costs (buy/sell costs) on some investment option(s) when a switch is conducted. See the Buy/sell spreads section for more information about these costs. To request investment strategy changes and switches log into your account at superau.bhpbilliton.com or call us on Before you make an investment strategy change or switch, you need to consider the relevant information provided in the current version of this guide, the PDS and applicable investment managers PDSs (if any) for each investment option selected. We suggest you seek licensed financial advice before changing your investment strategy or switching investments. We will sell units proportionately from your asset holdings for the deduction of any outstanding fees, insurance premiums and taxes. Frequent switching You should not invest in the Fund if you intend to switch your investments frequently in the pursuit of short term gains. We monitor all investment options for abnormal transaction activity because this sort of activity can have adverse impacts for other members. To maintain equity the Trustee has the right to deal with members who frequently switch by: delaying, limiting or rejecting their future switch requests; cancelling membership; and transferring their account balance to the Plan s eligible rollover fund (ERF). Want to know more? We can provide you with access to qualified Super Consultants who can help you find an investment strategy that best suits your personal circumstances. Call us

20 Investment option costs Investment fees The investment fee is the cost charged for the investment management of assets within the Plan for each option. Investment fees are deducted from the unit price of each investment option on a daily basis and are not directly deducted from your account unit holding in each investment option. These costs are made up of the following: Indicative investment fees Estimated Indirect Cost Ratio (ICR) These include fees charged by the relevant manager and Plum, and operational expenses incurred by us in relation to the operation of each investment option such as custody charges and audit fees. Fees charged by the investment manager are incurred in the underlying investment and vary between the investment options because of the different costs associated with managing the underlying investments. In some cases a performance fee may also be included. Refer to the Performance fee section for more information. The indicative investment fees disclosed in this guide are expected costs and may differ from the actual investment fee that applies over the course of the year, though we would expect such differences to be relatively small. The ICR is an estimate of additional costs which are not included in the Indicative Investment fee. For example, if an investment manager invests in other investment products, the ICR will include the underlying costs of these products. The ICR reflects the best estimate available of the indirect costs that will be incurred in the current year expressed as a percentage. Due to variability of indirect costs, the ICR can change from year to year. It is important to note that the investment returns shown are the net returns to you after all costs have been deducted. Transactional costs When calculating unit prices, we may make an allowance for the costs of buying and selling assets. These costs include brokerage and stamp duty and are commonly referred to as buy-sell spreads. When you transact on your account you may pay a small proportion of your transaction towards meeting these costs. These may vary in future without prior notice to you. In the description of the investment options we include the Transaction costs for each option. Changes to fees Variations of the buy/sell spreads and investment fees can occur at the discretion of the investment manager. Where we deem an increase in investment fees to be material, notification of the change will be provided as soon as possible. While all attempts will be made, we may not be able to provide prior notice of such variations. 18

21 Investment option costs Performance fees For some of the multi manager options on the investment menu the underlying investment managers may charge performance-based fees. These are fees that apply when that investment manager achieves an investment performance in excess of a specified criteria or benchmark. The estimated performance fee for each option is set out in the table below. These are estimates only and show the approximate level of performance fees that would be payable if the investment managers concerned outperformed their benchmark by 2%. Tax All fees quoted include goods and services tax (GST) (if applicable) and any applicable reduced input tax credit (RITC). The benefits of tax deductions obtained by the Fund as a result of the fees paid, are passed back to members monthly or when you leave the Fund. This is in the form of a tax credit which will generally reduce contributions tax. Investment fee rebate An investment fee rebate may apply to some investment options on the investment menu which we pass entirely back to your account at the end of each month or when you leave the Plan. The PDS provides details of the investment option(s) whereby a rebate applies; please refer to this guide for more information. Example One of the underlying managers used in a multi manager option can earn a performance fee of 15% of the out-performance that exceeds the agreed benchmark performance. Assume that the agreed benchmark investment return for the underlying manager was 5% over the year. The underlying manager would need to achieve over 5% after fees to be eligible for a performance-based fee. If the underlying manager returned 10% after fees over the same period, (i.e out-performed by 5% on an after-fees basis), and the underlying manager represented 5% of the assets of the multi-manager option the performance fee payable is: $50,000 Amount invested in the multi-manager investment option $2,500 Underlying manager is 5% of the option x 5% The out-performance x 15% Proportion of out-performance the investment manager receives as bonus = $18.75 Performance fee payable 0.04% Performance fee as a percentage of the multi manager option. 19

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