Standard Risk Measure
What exactly is a Standard Risk Measure (SRM)?
The SRM is a guide to estimating the expected number of negative annual returns in your super fund over any 20-year period. It helps you compare different investment options by giving “risk” labels to each option depending on the estimates, and is based on industry guidance.
We have engaged an external consultant to calculate the SRM for each of the investment options, using a model which meets guidelines introduced by ASFA/FSC in July 2011.
The SRM is not a complete assessment of all forms of investment risk, for example it does not detail what the size of a negative return could be or the potential for a positive return to be less than what you may require to meet your objectives.
The asset class risk and return characteristics are applied to a fund’s asset allocation to product both an expected return and a probability of a negative return in any one year. This is then utilised to provide the probability of the number of negative annual returns over 20 years.
Depending on the number of expected negative annual returns over a 20-year period, each investment option is classified in a risk band, ranging from very low risk (such as cash based options, where there are 0.5 or less expected negative annual returns in any 20-year period) to very high risk (such as high growth options, when there are six or more expected negative years out of 20).
The SRM for each of our investment options is as follows:
| Investment Option | Super, Transition to retirement & Flexible Income Plan (Pension) | Investment Funds | ||
|---|---|---|---|---|
| Risk Band | Risk Label | Risk Band | Risk Label | |
| Diversified options | ||||
| Capital Stable | 2 | Low | 3 | Low to Medium |
| Moderate | 3 | Low to Medium | 4 | Medium |
| Balanced | 4 | Medium | 5 | Medium to High |
| Growth | 6 | High | 6 | High |
| Growth Plus2 | 6 | High | ||
| Single asset class options | ||||
| Cash | 1 | Very Low | 1 | Very Low |
| Fixed Interest1 | 5 | Medium to High | 5 | Medium to High |
| Australian Equities | 7 | Very High | 7 | Very High |
| International Equities | 7 | Very High | 7 | Very High |
1 The Standard Risk Measure is only a measure of the estimated number of negative annual returns over a 20 year period and is not a complete assessment of all forms of risk, for example it does not take into account the size of a potential negative return. Despite the Fixed Interest Fund being assessed as having a Standard Risk Measure of ‘5 – Medium to High’, when we assess the expected risk of this Fund more holistically, the Fund is only expected to have a moderate level of risk.
2 Available in the Allocated Pension Fund and Personal Retirement Fund