Mercer MSIT Quarterly report Q2 2014 · produced a deeper contraction in Q1 GDP, consensus...

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 This report is issued by Mercer Investments (Australia) Limited (MIAL) ABN 66 008 612 397 Australian Financial Services Licence #244385 is the trustee of the Mercer Super Investment Trust ABN 19 905 422 891. "MERCER" is a registered trademark of Mercer (Australia) Pty Ltd (Mercer) ABN 32 005 315 917 QUARTERLY REPORT THREE MONTHS TO 30 June 2014

Transcript of Mercer MSIT Quarterly report Q2 2014 · produced a deeper contraction in Q1 GDP, consensus...

Page 1: Mercer MSIT Quarterly report Q2 2014 · produced a deeper contraction in Q1 GDP, consensus forecasts for growth in 2014 and 2015 have been broadly stable over the past three months.

 

This report is issued by Mercer Investments (Australia) Limited (MIAL) ABN 66 008 612 397 Australian Financial Services Licence #244385 is the trustee of the Mercer Super Investment Trust ABN 19 905 422 891. "MERCER" is a registered trademark of Mercer (Australia) Pty Ltd (Mercer) ABN 32 005 315 917

QUARTERLY REPORT THREE MONTHS TO 30 June 2014

Page 2: Mercer MSIT Quarterly report Q2 2014 · produced a deeper contraction in Q1 GDP, consensus forecasts for growth in 2014 and 2015 have been broadly stable over the past three months.

MERCER SUPER INVESTMENT TRUST QUARTERLY REPORT  

 

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CONTENTS

ECONOMY & MARKETS 1 - 2

MULTI SECTOR OPTIONS 3 -4

Mercer Growth 3

Mercer Conservative Growth 3

Mercer Shares 4

IMPORTANT NOTES 5-6

Details on multi-sector options’ allocations to:

Australian shares 7-8

Australian small companies 9

Overseas shares 10-12

Overseas small companies 13

Emerging markets 14

Listed property 15

Direct property 16

Listed infrastructure 17

Unlisted infrastructure 18

Natural resources 19

Alternative assets 20

Australian sovereign bonds 21

Overseas sovereign bonds 22

Inflation-linked bonds 23

Global credit 24

Cash 25

ECONOMY & MARKETS

Most major global asset classes delivered solid returns in Q2. Developed equity market returns were stronger, again led by the US, where the S&P 500 produced a total return of 5.2%, in the process reaching record highs. Japan recovered moderately in Q2 (returning 2.3%), while most European markets and the UK posted similar performances. Global small caps underperformed, but have still outperformed large caps over the past year.

Partly reversing the pattern of the past year, emerging markets outperformed the developed world. Amid broad-based gains, India was the standout performer. The Bombay Sensex Index rose a further 13.5% (and has now increased by 31.0% over the past year), reflecting expectations of significant economic reforms under the new Modi government. The Russian market also recovered strongly over the quarter, although China continued to languish.

Amid a new round of earnings downgrades, Australian equities significantly underperformed international markets in Q2. Australian small caps have continued to underperform broad caps and global small caps over all recent time periods.

Whereas Australian equities underperformed global markets in Q2, Australian government bond markets outperformed. The Australian 10-year government bond yield plunged to 3.54% at the end of June, from 4.08% at the end of March and 4.24% at the end of 2014, with the spread over the US subsequently narrowing sharply. Australian inflation-linked bonds also outperformed in Q2, delivering a total return of 5.5%.

The AUD edged a little higher against the USD (from 0.92 to 0.94) and on a trade-weighted basis (from 71.0 to 72.0) as prices across a wide range of energy and hard commodities increased in Q2, reflecting both the improving global growth outlook and geo-political tensions in the Middle East and the Ukraine. Iron ore again was a major exception, falling from $US112/tonne to $US96/tonne.

AUSTRALIA

Australian GDP growth continued to strengthen into early 2014. The 1.1% increase in Q1, and the 3.4% increase over the year, represents the strongest growth since the first half of 2012. Nevertheless, the pattern of Australian growth remains extremely unbalanced, with a surge in mineral export volumes offsetting the unfolding downturn in mining investment, while little of the rise in national income is feeding through into household incomes. The process of domestic rebalancing remains further constrained by the combination of the renewed appreciation of the AUD, the absence of action to address the continuing erosion in Australia’s cost competitiveness and renewed fiscal consolidation. Indeed, the recovery in the labour market remains tentative, and there are signs that the upturn in consumption growth and dwelling approvals may already be close to peaking.

Against this backdrop, we expect Australia’s GDP growth to moderate over the balance of 2014 and into early 2015. Despite continuing cost pressures from some areas (particularly in goods and services sensitive to government policy and intensified government cost recovery efforts), the prospect of relatively weak domestic demand and only a slow decline in the unemployment rate suggest little further upside to Australian inflation in the short-term. Even with headline and core inflation currently in the top half of the RBA’s 2% - 3% target range, this outlook should allow the RBA to keep cash rates in hold well into 2015.

GLOBAL

In mid-2014 growth appears poised to become more synchronised across the major developed and emerging economies, possibly for the first time since early 2010. With the exception of the United States, where official estimates have successively produced a deeper contraction in Q1 GDP, consensus forecasts for growth in 2014 and 2015 have been broadly stable over the past three months. However, it is clear US growth rebounded comfortably in Q2 and we expect further moderate strengthening in US GDP growth in Q3.

In the United Kingdom, the other major developed economy at the forefront of the global upturn, growth appears also to have retained solid momentum entering the second half of 2014. In contrast, business surveys suggest the relatively weak recovery in the Euro area may have flagged a little in Q2, although conditions have continued to improve steadily (if somewhat slowly) in peripheral European economies. After the deep fall in activity in Japan in April following an increase in taxes, purchasing manager surveys suggest activity may have already stabilised, with orders rising again in June.

There is growing evidence the downturns across the major emerging economies may also have been finally arrested, underpinned at least partly by stronger demand in the developed economies. Growth appears to have strengthened in both China and India (also reflecting targeted stimulus measures and a surge in capital inflows, respectively), while the sharp downturn in Russia appeared to stabilise in June. In Brazil, in contrast, activity remains flat.

Page 3: Mercer MSIT Quarterly report Q2 2014 · produced a deeper contraction in Q1 GDP, consensus forecasts for growth in 2014 and 2015 have been broadly stable over the past three months.

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FINANCIAL MARKET RETURNS TO 30 June 2014

NOTE: Past performance is not a reliable indicator of future performance. Performance shown only for asset classes that are applicable to sector MMFs benchmarked against a single index. # Fully hedged return ^ Unhedged return MARKET OUTLOOK

We continue to believe the environment of solid growth, low inflation and low interest rates is supportive of equity markets in the developed world. However, valuations have become less supportive, especially in the US, and we expect equity returns to be lower than in recent years.

Against a backdrop of stronger and increasingly synchronised global growth, and with the Fed expected to cease its program of quantitative easing (QE) in October 2014, the resilience of global bond markets is somewhat perplexing. Indeed, core inflation in a number of countries (including the US) has picked up in the past few months.

In our view bond markets have become too optimistic and are not adequately discounting the possible risk that the Fed

and the Bank of England may decide to increase interest rates earlier (i.e. 2015H1). Elsewhere, in contrast, there appears little risk of the ECB or the Bank of Japan quickly backing away from current credit and quantitative easing programs. Nevertheless, apart from uncertainty over the timing of first rate increases, we remain comfortable with the tightening cycles currently discounted in the US and the UK, and expect central banks in both countries to emphasise the peak in rates is likely to be significantly lower than in previous cycles.

With the US economy strengthening and inflation rising modestly, the US Federal Reserve is likely soon to begin signalling an interest rate rise in 2015. This should put upward pressure on bond yields, although we expect the Fed to also signal

it is unlikely to raise interest rates aggressively, limiting the extent of any bond market weakness. While a benign economic environment is positive for non-government bonds relative to government, the very low yield levels suggest that returns over the medium term are likely to be lower than would normally be expected.

The two key risks to both the global economy and global financial markets are: a) that US and other central banks embark on monetary policy tightening earlier and more aggressively than expected ; b) instability in some emerging economies spreads to other parts of the world via trade and financial market linkages.

Page 4: Mercer MSIT Quarterly report Q2 2014 · produced a deeper contraction in Q1 GDP, consensus forecasts for growth in 2014 and 2015 have been broadly stable over the past three months.

MERCER SUPER INVESTMENT TRUST QUARTERLY REPORT  

 

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NOTE: Past performance is not a reliable indicator of future performance. Refer to page 5 - ’Important notes about this Report’ - for further information on the calculation of returns

MULTI-SECTOR INVESTMENT OPTIONS

.

MERCER GROWTH Objectives

To achieve a return (after tax and investment management fees) that exceeds CPI increases by at least 3.0% per annum over rolling five year periods. This objective for the five years to quarter end was 5.6% per annum.

To achieve a return (over the medium to longer term) which is competitive with comparable funds that have a similar allocation to growth assets and similar risk characteristics.

*Composite benchmark of relevant indices

^ Time horizon for this investment option’s objective (refer above)

2 Super Ratings Balanced (60-76)

Asset Allocation (%) B’mark Actual at quarter end

Growth Defensive Total

Shares

Australian Shares 23.50 25.54 0.00 25.54

Australian Small Caps 1.00 2.65 0.00 2.65

Overseas Shares 23.50 24.28 0.00 24.28

Overseas Small Caps 1.00 1.93 0.00 1.93

Emerging Markets 0.00 2.06 0.00 2.06 R

ea

l Assets

Direct Property 3.00 4.68 0.00 4.68

Listed Property 4.00 1.56 0.78 2.34

Unlisted Infrastructure 3.00 1.46 0.00 1.46

Listed Infrastructure 5.00 0.90 2.71 3.61

Natural Resources 3.00 2.42 0.00 2.42

Alternatives 2.00 1.37 0.00 1.37

Fixed Interest

Aust. Sovereign Bonds 5.00 2.54 2.54 5.08

O/S Sovereign Bonds 10.00 0.00 5.32 5.32

Inflation Linked Bonds 5.00 0.00 2.56 2.56

Global Credit 1.50 0.00 0.97 0.97

Emerging Markets Debt 3.00 2.02 4.05 6.07

Cash 2.00 0.00 1.73 1.73

4.50 0.00 5.93 5.93

 

 

MERCER CONSERVATIVE GROWTH Objectives

To achieve a return (after tax and investment management fees) that exceeds CPI increases by at least 2.0% per annum over rolling three year periods. This objective for the three years to quarter end was 4.5% per annum.

To achieve a return (over the medium to longer term) which is competitive with comparable funds that have a similar allocation to growth assets and similar risk characteristics.

*Composite benchmark of relevant indices

^ Time horizon for this investment option’s objective (refer above)

2 Super Ratings Capital Stable (20-40)

Asset Allocation (%) B’mark Actual at quarter end

Growth Defensive Total

Shares

Australian Shares 7.50 12.46 0.00 12.46

Australian Small Caps 0.00 0.00 0.00 0.00

Overseas Shares 7.50 12.73 0.00 12.73

Overseas Small Caps 0.00 0.00 0.00 0.00

Emerging Markets 0.00 2.05 0.00 2.05

Re

al A

ssets

Direct Property 1.50 0.61 0.00 0.61

Listed Property 3.00 0.53 0.26 0.79

Unlisted Infrastructure 1.50 0.28 0.00 0.28

Listed Infrastructure 3.00 0.24 0.72 0.96

Natural Resources 1.50 0.86 0.00 0.86

Alternatives 1.00 1.69 0.00 1.69

Fixed Interest

Aust. Sovereign Bonds 3.00 3.82 3.82 7.63

O/S Sovereign Bonds 20.00 0.00 14.17 14.17

Inflation Linked Bonds 7.50 0.00 5.96 5.96

Global Credit 3.00 0.00 4.77 4.77

Emerging Markets Debt 6.50 3.22 7.72 10.94

Cash 2.50 0.00 1.75 1.75

31.00 0.00 22.35 22.35

 

Total & Excess Returns - Before fees & taxes (%)

3 Months

1 Year

5 Yrs^ (p.a.)

10 Yrs (p.a.)

Total Returns: 2.3 14.3 10.5 7.7

Benchmark Return* 2.5 13.5 10.7 7.4

Excess Returns: -0.2 +0.8 -0.2 +0.3

Total Returns – After fees & taxes (%)

3 Months

1 Year 5 Yrs^ (p.a.)

10 Yrs (p.a.)

Total Returns: 1.9 12.2 9.0 6.3

Peer Group Median2 2.1 12.6 9.1 6.7

Excess Returns vs peer Group -0.2 -0.4 -0.1 -0.4

Performance attribution this quarter (%)

Asset Allocation -0.1

Stock/manager selection -0.1

Excess Return for quarter – Before fees & taxes: -0.2

Total & Excess Returns - Before fees & taxes (%)

3 Months

1 Year

3 Yrs^ (p.a.)

10 Yrs (p.a.)

Total Returns: 1.9 8.2 7.3 6.8

Benchmark Return* 2.1 7.4 7.0 6.6

Excess Returns: -0.2 +0.8 +0.3 +0.2

Total Returns – After fees & taxes (%)

3 Months

1 Year 3 Yrs^ (p.a.)

10 Yrs (p.a.)

Total Returns: 1.6 6.4 5.9 5.1

Peer Group Median2 1.7 7.2 6.5 5.7

Excess Returns vs peer Group -0.1 -0.8 -0.6 -0.6

Performance attribution this quarter (%)

Asset Allocation -0.1

Stock/manager selection -0.1

Excess Return for quarter – Before fees & taxes: -0.2

Page 5: Mercer MSIT Quarterly report Q2 2014 · produced a deeper contraction in Q1 GDP, consensus forecasts for growth in 2014 and 2015 have been broadly stable over the past three months.

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NOTE: Past performance is not a reliable indicator of future performance. Refer to page 5 - ’Important notes about this Report’ - for further information on the calculation of returns

MULTI-SECTOR INVESTMENT OPTIONS

MERCER SHARES Objectives

To achieve a return (after tax and investment management fees) that exceeds CPI increases by at least 4.0% per annum over rolling seven year periods. This objective for the seven years to quarter end was 6.8% per annum.

*Composite benchmark of relevant indices

^ Time horizon for this investment option’s objective (refer above)

2 Super Ratings High Growth (91-100)

Asset Allocation (%) B’mark Actual at quarter end

Growth Defensive Total

Shares

Australian Shares 45.00 37.55 0.00 37.55

Australian Small Caps 2.00 2.05 0.00 2.05

Overseas Shares 45.00 51.08 0.00 51.08

Overseas Small Caps 2.00 1.93 0.00 1.93

Emerging Markets 6.00 7.31 0.00 7.31

Cash 0.00 0.00 0.09 0.09

100.00 99.91 0.09 100.00

   

 

Total & Excess Returns - Before fees & taxes (%)

3 Months

1 Year

7 Yrs^ (p.a.)

10 Yrs (p.a.)

Total Returns: 2.3 19.0 2.9 7.9

Benchmark Return* 2.4 19.2 2.6 7.7

Excess Returns: -0.1 -0.2 +0.3 +0.2

Total Returns – After fees & taxes (%)

3 Months

1 Year 7 Yrs^ (p.a.)

10 Yrs (p.a.)

Total Returns: 1.8 15.5 1.3 6.0

Peer Group Median2 2.2 15.8 2.3 6.4

Excess Returns vs peer Group -0.4 -0.3 -1.0 -0.4

Performance attribution this quarter (%)

Asset Allocation 0.0

Stock/manager selection -0.1

Excess Return for this quarter – Before fees & taxes: -0.1

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IMPORTANT NOTES ABOUT THIS REPORT Past performance is not a reliable indicator of future

performance.

Only Mercer Super Investment Trust (MSIT) investment options that were invested in at the end of the quarter are reported on. If you have invested in the following sector investment options, please note the performance details relating to these two options are the same as for the underlying allocations to Alternatives and Cash:

Mercer Diversified Alternatives investment option (see page 5)

Mercer Cash investment option (see page 6)

Total returns are based on exit prices. Total returns are shown both before and allowing for deduction of investment management fees and taxes.

Excess returns relative to benchmark are calculated by the difference between performance (before investment management fees and taxes) and the asset-weighted benchmark return.

Asset weights used are those shown in the MSIT Product Disclosure Statements (PDS) and Investment Policy Statement (IPS) as relevant.

The applicable benchmark is noted in the summary of before-fees performance. As noted, for certain investment options (i.e. those invested in multiple sectors such as the multi-sector options) a composite of the relevant benchmarks applies.

Benchmark refers to an asset allocation benchmark that currently applies only to certain investment options. In this report, the Benchmark is used in respect of the asset allocations for the following investment options:

Multi-sector options (excluding Mercer Cash)

− Mercer Growth Plus

− Mercer Conservative Growth

− Mercer Shares

The Benchmark falls within the asset allocation benchmark range specified in the PDS.

Performance attribution refers to another way of deriving the excess return. With performance attribution, performance above or below the benchmark return can be “attributed” to two factors:

1. Asset allocation: the degree to which actual asset allocation varies from the benchmark asset allocation.

2. Stock/manager selection: the degree to which returns achieved by underlying managers in the various asset classes vary from the relevant benchmark returns for those asset classes.

Performance (before investment management fees and taxes) may be provisional depending on information available at the time of publication and may be subject to adjustment.

As mentioned in the PDS, some investment options may also include “opportunistic” investments. However, no such investments were held at quarter end.

Returns throughout this report may be subject to rounding error.

Page 7: Mercer MSIT Quarterly report Q2 2014 · produced a deeper contraction in Q1 GDP, consensus forecasts for growth in 2014 and 2015 have been broadly stable over the past three months.

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LEARN MORE ABOUT THE UNDERLYING INVESTMENTS Uncover more detail on each asset class allocation of the multi-sector investment options. The following example shows you how.

Suppose that you want more information about the allocation to Australian shares of one of the Mercer multi-sector investment options. In this case, you can refer to the Australian shares section (see sample below) where you will find details on: A. The performance of the Australian

share market during the quarter and factors influencing it.

B. The investment option’s benchmark

allocation to the various Australian share market sectors (e.g. Financials, Energy, Utilities).

C. The variance from the sector benchmarks, whether ‘overweight’ (with a greater-than- benchmark exposure) or ‘underweight’ (with sub-benchmark exposure).

D. Benchmark returns for the quarter.

Ideally, we want to be overweight in sectors with positive returns and underweight in those with negative returns.

E. The biggest holdings of individual

company stocks.

F. Performance of the underlying investments in Australian shares. In other words, the performance of that part of the multi-sector investment options that is allocated to Australian shares.

G. The underlying investment managers, including details of the proportion of assets they managed and their investment performance over various periods to quarter end. Please note that the details on the proportion of assets managed are only applicable to the allocations of the Mercer Growth investment option. However, all other details are equally applicable to all the multi-sector investment options.

Similarly, you can dig deeper with each of the other asset classes using the information provided in the following section of your quarterly report.

A B

C

D

E

F

G

Page 8: Mercer MSIT Quarterly report Q2 2014 · produced a deeper contraction in Q1 GDP, consensus forecasts for growth in 2014 and 2015 have been broadly stable over the past three months.

MERCER SUPER INVESTMENT TRUST QUARTERLY REPORT  

   

NOTE: Past performance is not a reliable indicator of future performance. Refer to page 5 - ’Important notes about this Report’ - for further information on the calculation of returns 

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SHARES

AUSTRALIAN SHARES The Australian share market gained 0.9% over the June quarter (measured by the S&P/ASX 300 Index), underperforming overseas markets. The best performing sectors were Utilities (+5.9%), Energy (+5.1%) and Telecommunications (+1.7%) while weak returns were posted by Materials (-3.2%) Healthcare (-2.0%) and Consumer Discretionary (-2.0%).

Multi-sector options’ allocations to Australian shares

Benchmark weight by sector (%) S&P/ASX 300 Accumulation Index

Sector Exposure — Overweight/Underweight positions as at 30 June 2014 (%)

Benchmark sector returns for the three months to 30 June 2014(%) S&P/ASX 300 Accumulation Index

Page 9: Mercer MSIT Quarterly report Q2 2014 · produced a deeper contraction in Q1 GDP, consensus forecasts for growth in 2014 and 2015 have been broadly stable over the past three months.

QUARTER ENDING JUNE 2014 

   

NOTE: Past performance is not a reliable indicator of future performance. Refer to page 5 - ’Important notes about this Report’ - for further information on the calculation of returns

 

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SHARES

Manager Returns Relative to Fund Benchmark* (+ or - %) - Before fees

Managers 3 Months 1 Year 3 Years (p.a.)

7 Years (p.a.)

10 Years(p.a.)

JCP Investment Partners +0.4 +0.4 +0.6 n/a n/a

Alleron Investment Management -0.7 +0.3 +0.1 +1.7 n/a

Ausbil Dexia -1.4 +4.1 +2.1 +2.1 n/a

Tyndall Investment Management -0.1 +0.9 +0.6 n/a n/a

Goldman Sachs +0.2 n/a n/a n/a n/a

Vinva -0.7 -1.2 n/a n/a n/a

SSGA 0.0 n/a n/a n/a n/a

AUSTRALIAN SHARES Multi-sector options’ allocations to Australian shares

Top 10 Australian share holdings Listed (right) are the 10 largest Australian share holdings in aggregate within the Mercer ready- made investment options’ allocations to Australian shares quarter end compared to their respective benchmarks.

Investment performance

The Australian Shares fund underperformed the benchmark index in the quarter largely due to the overweight position in Materials stocks.

Total & Excess Returns1 (%) 3 Months 1 Year 3 Years (p.a.)

7 Years (p.a.)

10 Years (p.a.)

Total Returns — Before fees & taxes: 0.7 17.8 10.3 3.1 n/a

Benchmark* Return — Before fees & taxes: 0.9 17.3 9.9 2.1 n/a

Excess Return — Before fees & taxes: -0.2 +0.5 +0.3 +1.0 n/a

1 Returns shown are for the Australian Shares allocation of the Mercer Growth investment option and will vary for other investment options

* Note that a composite benchmark was used prior to August 2007. In that month, the benchmark was standardised to the S&P/ASX 300 Accumulation Index.

Manager performance Ausbil was the major detractor from performance over the quarter, largely due to its overweight to underperforming pro-cyclical stocks. Vinva’s underperformance over the quarter was largely due to a bias to higher quality securities following low quality rally. Alleron’s underperformance was largely due to overweight holdings in underperforming Seek, Illuka Resources and Coca-Cola Amatil. JCP and Goldman Sachs each outperformed over the month, JCP’s outperformance was largely driven by overweight positions in outperforming Westfield and Tattersall’s. Goldman Sachs’ outperformance was largely due to an overweight exposure to the outperforming Energy sector.

* S&P/ASX 300 Accumulation Index, which is the benchmark used for the MSIT multi-sector options’ allocations to this asset class. Alternate benchmarks may apply to managers individually.

Proportion of assets managed at quarter end (Mercer Growth) Manager %

JCP Investment Partners 27.5

Alleron Investment Management 10.3

Ausbil Dexia 13.5

Tyndall Investment Management 11.9

Goldman Sachs 10.8

Vinva 14.0

SSGA 12.0

Stock % of

Allocation % of

Benchmark BHP Billiton 8.3 8.6

Commonwealth Bank 8.0 9.8

ANZ Banking Group 7.5 6.8

Westpac Banking Corporation 7.4 7.9

National Australia Bank 5.6 5.8

Telstra Corporation 3.7 4.8

Woodside Petroleum 2.4 2.2

Woolworths 2.3 3.3

Rio Tinto 2.3 1.9

Oil Search 1.9 0.8

Page 10: Mercer MSIT Quarterly report Q2 2014 · produced a deeper contraction in Q1 GDP, consensus forecasts for growth in 2014 and 2015 have been broadly stable over the past three months.

MERCER SUPER INVESTMENT TRUST QUARTERLY REPORT  

  

NOTE: Past performance is not a reliable indicator of future performance. Refer to page 5 - ’Important notes about this Report’ - for further information on the calculation of returns  

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SHARES

Manager Returns Relative to Fund Benchmark* (+ or - %) - Before fees

Managers 3 Months 1 Year 3 Years (p.a.)

7 Years (p.a.)

10 Years(p.a.)

IFM n/a n/a n/a n/a n/a

Legg Mason +1.3 n/a n/a n/a n/a

Northcape +1.7 +7.9 +2.5 n/a n/a

Perennial Value Management +3.0 +9.4 +6.7 n/a n/a

AUSTRALIAN SHARES – SMALL COMPANIES Small company stocks generated a negative return in the June 2014 quarter. The small company sector of the Australian share market (as measured by the S&P/ASX Small Ordinaries Accumulation Index) returned -2.3%.

Australian small vs ‘large’ company performance

 

Multi-sector options’ allocations to Australian Small Companies

Investment performance The fund continues to generate very strong returns above the benchmark index, largely due to strong stock selection by the underlying investment managers.

Total & Excess Returns (%) 3 Months 1 Year 3 Years (p.a.)

7 Years (p.a.)

10 Years (p.a.)

Total Returns — Before fees & taxes: -1.1 17.5 5.5 1.7 n/a

Benchmark* Return — Before fees & taxes: -2.3 13.1 -2.9 -5.5 n/a

Excess Return — Before fees & taxes: +1.2 +4.4 +8.4 +7.2 n/a

* S&P/ASX Small Ordinaries Accumulation Index.

Manager performance

All managers contributed to the outperformance over the June quarter. Perennial was the strongest contributor due to overweight exposure to the outperforming Resmed and APN News and Media. Northcape’s outperformance was largely due to overweight exposure to outperforming Papillon Resources and Silver Lake.

During June, IFM Investors replaced Kosmos in the Australian Small Companies Fund manager configuration.

^ Percentages may vary slightly from investment option to investment option. The percentages shown here are based on act al percentages applying to the Mercer Growth investment option and are indicative only for other readymade options.

* S&P/ASX Small Ordinaries Accumulation Index, which is the benchmark used for the MSIT readymade options’ allocations to this asset class.

Proportion of assets managed at quarter end (Mercer Growth) Manager %^

IFM 28.7

Legg Mason 23.8

Northcape 23.4

Perennial Value Management 24.1

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QUARTER ENDING JUNE 2014 

   

NOTE: Past performance is not a reliable indicator of future performance. Refer to page 5 - ’Important notes about this Report’ - for further information on the calculation of returns

 

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SHARES

OVERSEAS SHARES Global equity markets were positive in the quarter ending 30 June 2014. The broad MSCI World ex Australia Index rose 5.1% in hedged terms and 3.0% in unhedged terms, as the Australian dollar appreciated against most of the major currencies

Multi-sector options’ allocations to Overseas shares

Benchmark weights by sector (%) MSCI World Index (ex Australia)

Sector Exposure - Overweight/Underweight positions as at 30 June 2014 (%)

Benchmark sector returns for the three months to 30 June 2014 (%) MSCI World Index (ex Australia)

Page 12: Mercer MSIT Quarterly report Q2 2014 · produced a deeper contraction in Q1 GDP, consensus forecasts for growth in 2014 and 2015 have been broadly stable over the past three months.

MERCER SUPER INVESTMENT TRUST QUARTERLY REPORT  

  

NOTE: Past performance is not a reliable indicator of future performance. Refer to page 5 - ’Important notes about this Report’ - for further information on the calculation of returns  

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SHARES

OVERSEAS SHARES Multi-sector options’ allocations to Overseas shares

Benchmark weights – Top 10 countries (%) MSCI World Index (ex Australia) - in A$ with net dividends reinvested

Exposure to top 10 countries - Overweight/Underweight positions as at 30 June 2014 (%)

Top 10 countries’ benchmark returns for the three months to 30 June 2014 (%) MSCI World Index (ex Australia) - in A$ with net dividends reinvested

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QUARTER ENDING JUNE 2014 

   

NOTE: Past performance is not a reliable indicator of future performance. Refer to page 5 - ’Important notes about this Report’ - for further information on the calculation of returns

 

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SHARES

Manager Returns Relative to Fund Benchmark* (+ or - %) - Before fees

Managers 3 Months 1 Year 3 Years (p.a.)

7 Years(p.a.)

10 Years(p.a.)

Arrowstreet +0.5 +3.9 n/a n/a n/a

Baille Gifford -1.7 +1.0 n/a n/a n/a

BlackRock n/a n/a n/a n/a n/a

Franklin Templeton Global Equities -1.3 -1.8 n/a n/a n/a

Global Thematic Partners +0.4 +1.6 -3.5 n/a n/a

Hexavest -0.7 -5.6 -1.4 n/a n/a

Lingohr & Partner Asset Management +0.8 +1.5 -3.3 n/a n/a

Schroder Investment Management -0.2 -0.8 +0.3 n/a n/a

SSGA Overseas Shares Index Trust 0.0 -0.9 -0.5 0.0 +0.1

OVERSEAS SHARES Top 10 Overseas share holdings Listed (right) are the 10 largest Overseas share holdings in aggregate within the Mercer ready- made investment options’ allocations to Overseas shares quarter end compared to their respective benchmarks.

Multi-sector options’ allocations to Overseas Shares

Investment performance The fund marginally underperformed the index over the quarter.

Total & Excess Returns (%) 3 Months 1 Year 3 Years (p.a.)

7 Years (p.a.)

10 Years (p.a.)

Total Returns — Before fees & taxes: 2.8 20.2 16.2 0.8 n/a

Benchmark* Return — Before fees & taxes: 3.0 20.4 16.8 1.8 n/a

Excess Return — Before fees & taxes: -0.2 -0.2 -0.7 -1.0 n/a

* Note that a composite benchmark was used for this investment option from its inception to August 2007. In that month, the benchmark was standardised to the MSCI World Index (ex Australia) - in A$ with net dividends reinvested.

Manager performance Lingohr was the strongest performer over the quarter with outperformance largely driven by strong stock selection in the UK and Canada and an underweight exposure to the US dollar. Arrowstreet’s outperformance was driven by strong stock selection, in particular within the US IT and UK Health Care sectors overall. Underperformance over the quarter was attributable to Baillie Gifford and Franklin Templeton. Stock selection was the key detractor from performance for Baillie Gifford, in particular overweight holdings in the underperforming eBay and Ryanair Holdings securities. Franklin Templeton’s underperformance was largely due to overweight holdings in the underperforming AthenaHealth and Discovery Communications.

* MSCI World Index (ex Australia) - in A$ with net dividends reinvested, which is the benchmark used for the MSIT multi-sector options’ allocations to this asset class..

Proportion of assets managed at quarter end (Mercer Growth) Manager %

Arrowstreet 11.1

Baille Gifford 9.3

BlackRock 4.6

Franklin Templeton Global Equities 6.4

Global Thematic Partners 8.5

Hexavest 10.8

Lingohr & Partner Asset Management 8.2

Schroder Investment Management 33.6

SSGA Overseas Shares Index Trust 7.5

Stock % of

Allocation % of

Benchmark Apple 1.8 1.8

Roche 1.0 0.6

Johnson & Johnson 0.9 0.9

Microsoft Corporation 0.8 1.0

Exxon Mobil Corporation 0.8 1.3

Amazon 0.7 0.4

Merck & Co. Inc. 0.7 0.5

Vodafone Group 0.6 0.3

Chevron Corporation 0.6 0.8

Pfizer Inc 0.6 0.6

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NOTE: Past performance is not a reliable indicator of future performance. Refer to page 5 - ’Important notes about this Report’ - for further information on the calculation of returns  

13

SHARES

Manager Returns Relative to Fund Benchmark* (+ or - %) - Before fees

Managers 3 Months 1 Year 3 Years (p.a.)

5 Years (p.a.)

7 Years (p.a.)

Fidelity -1.3 -3.7 -0.7 +0.3 n/a

Arrowstreet -1.0 +3.2 n/a n/a n/a

OVERSEAS SHARES – SMALL COMPANIES Overseas small company stocks underperformed large company stocks in the quarter and year ending 30 June 2014.

Overseas small vs ‘large’ company performance

Multi-sector options’ allocations to Overseas Small Companies

Investment performance The fund underperformed its benchmark in the June 2014 quarter but over the long-term has strongly outperformed the benchmark index

Total & Excess Returns (%) 3 Months 1 Year 3 Years (p.a.)

5 Years (p.a.)

7 Years (p.a.)

Total Returns — Before fees & taxes: 0.2 23.1 18.9 16.4 4.7

Benchmark* Return — Before fees & taxes: 1.3 23.6 16.9 14.6 3.0

Excess Return — Before fees & taxes: -1.1 -0.5 +2.0 +1.8 +1.6

Manager performance Both Arrowstreet and Fidelity underperformed the benchmark over the June quarter. Arrowstreet’s underperformance was driven by sector allocation and stock selection, while Fidelity’s underperformance was largely due to underperforming exposures in the US and Japan.

* S&P Developed Smallcap Index total return with net dividends reinvested, which is the benchmark used for the fund.

Proportion of assets managed at quarter end (Mercer Growth) Manager %

Fidelity 61.1

Arrowstreet 38.9

Page 15: Mercer MSIT Quarterly report Q2 2014 · produced a deeper contraction in Q1 GDP, consensus forecasts for growth in 2014 and 2015 have been broadly stable over the past three months.

QUARTER ENDING JUNE 2014 

   

NOTE: Past performance is not a reliable indicator of future performance. Refer to page 5 - ’Important notes about this Report’ - for further information on the calculation of returns

 

14

SHARES

Manager Returns Relative to Fund Benchmark* (+ or - %) - Before fees

Managers 3 Months 1 Year 3 Years (p.a.)

5 Years (p.a.)

BlackRock -0.1 -2.5 +0.6 0.0

Realindex +2.5 +1.6 n/a n/a

EMERGING MARKETS After a prolonged period of underperformance compared to developed markets, emerging markets enjoyed a strong rebound in the quarter. Valuations for Emerging Markets compare very favourably at the present stage.

Emerging Markets vs ‘large’ company performance

Breakdown by country

Multi-sector options’ allocations to Emerging Markets

Investment performance The fund outperformed the benchmark in the quarter ending 30 June 2014.

Total & Excess Returns (%) 3 Months

1 Year

3 Years(p.a.)

5 Years(p.a.)

Total Returns — Before fees & taxes: 5.6 9.9 4.2 5.8

Benchmark* Return — Before fees & taxes: 4.7 10.9 3.9 5.9

Excess Return — Before fees & taxes: +0.9 -0.9 +0.3 -0.1

*MSCI Emerging Markets Free Float Index

Manager performance Realindex significantly outperformed the index over the quarter largely due to overweight exposure to outperforming India and Russia as well as strong stock selection. .

* MSCI Emerging Markets Free Float Index, which is the benchmark used for the MSIT multi-sector options’ allocations to this asset class.

Proportion of assets managed at quarter end (Mercer Growth) Manager %

BlackRock 64.7

Realindex 35.3

Page 16: Mercer MSIT Quarterly report Q2 2014 · produced a deeper contraction in Q1 GDP, consensus forecasts for growth in 2014 and 2015 have been broadly stable over the past three months.

MERCER SUPER INVESTMENT TRUST QUARTERLY REPORT  

   

NOTE: Past performance is not a reliable indicator of future performance. Refer to page 5 - ’Important notes about this Report’ - for further information on the calculation of returns  

15

REAL ASSETS

Manager Returns Relative to Fund Benchmark* (+ or - %) - Before fees

Managers 3 Months 1 Year 3 Years (p.a.)

5 Years (p.a.)

Macquarie 0.0 -0.4 n/a n/a

LISTED PROPERTY Listed property as measured by the FTSE EPRA/NAREIT Developed Hedged $A Index increased by 7.6% over the June quarter.

Australian Listed vs global listed property cumulative performance

 Note The indices used in the graph (above) are: S&P/ASX 200 Property Trusts Accumulation Index for Australian Listed Property FTSE EPRA/NAREIT Developed Hedges $A Index

 

Multi-sector options’ allocations to Listed Property

Investment performance The fund underperformed its benchmark for the quarter and year ending 30 June 2014.

Total & Excess Returns (%) 3 Months 1 Year 3 Years (p.a.)

5 Years (p.a.)

Total Returns — Before fees & taxes: 7.5 14.1 12.4 20.3

Benchmark* Return — Before fees & taxes: 7.6 14.5 13.3 21.8

Excess Return — Before fees & taxes: -0.1 -0.4 -0.9 -1.5

* FTST EPRA/NAREIT Developed Hedged $A index

Manager performance As expected, Macquarie performed broadly in line with the benchmark over the quarter.

* FTST EPRA/NAREIT Developed Hedged $A index, which is the benchmark used for the MSIT multi-sector options’ allocations to this asset class.

Proportion of assets managed at quarter end (Mercer Growth) Manager %

Macquarie 100.0

Page 17: Mercer MSIT Quarterly report Q2 2014 · produced a deeper contraction in Q1 GDP, consensus forecasts for growth in 2014 and 2015 have been broadly stable over the past three months.

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NOTE: Past performance is not a reliable indicator of future performance. Refer to page 5 - ’Important notes about this Report’ - for further information on the calculation of returns

 

16

REAL ASSETS

Manager Returns Relative to Fund Benchmark* (+ or - %) - Before fees

Managers 3 Months 1 Year 3 Years (p.a.)

7 Years (p.a.)

AMP Capital Investors +0.1 -1.4 -1.1 +0.3

Goodman Funds Management +0.5 +4.4 +1.5 -1.3

Investa Property Group -0.6 +0.8 0.0 +0.3

Lend Lease (Core Plus) -2.6 -7.5 -5.3 -4.8

Lend Lease (APPF Retail) -0.5 +1.0 +0.9 +2.4

DIRECT PROPERTY The direct property market continues to generate strong yield with modest capital growth.

Direct Property – 12 month Rolling Benchmark Return

 Note Note The indices used in the graph (above) are: Before 1/9/2009: Mercer Unlisted Property Funds Index After 1/9/2009: Mercer/IPD Australian Pooled Property Fund Index

Multi-sector options’ allocations to Direct Property

Investment performance The fund underperformed the benchmark in the quarter and year ending 30 June 2014.

Total & Excess Returns (%) 3 Months 1 Year 3 Years (p.a.)

5 Years (p.a.)

7 Years (p.a.)

Total Returns — Before fees & taxes: 2.2 8.3 8.1 5.8 5.4

Benchmark* Return — Before fees & taxes: 2.5 9.4 9.3 8.4 6.0

Excess Return — Before fees & taxes: -0.4 -1.2 -1.3 -2.5 -0.6

* Before 1/9/2009: Mercer Unlisted Property Funds Index

From 1/9/2009: Mercer/IPD Australian Pooled Property Fund Index

Manager performance Goodman was the strongest performer over the quarter driven by a number of positive asset revaluations.

. * Mercer/IPD Australian Pooled Property Fund Index (from 1/9/2009) and Mercer Unlisted Property Funds Index (before 1/9/2009) are/were the benchmarks used for the MSIT multi-sector options’ allocations to this asset class.

Proportion of assets managed at quarter end (Mercer Growth) Manager %

AMP Capital Investors 12.1

Goodman Funds Management 3.4

Investa Property Group 40.7

Lend Lease (Core Plus) 18.8

Lend Lease (APPF Retail) 25.0

Page 18: Mercer MSIT Quarterly report Q2 2014 · produced a deeper contraction in Q1 GDP, consensus forecasts for growth in 2014 and 2015 have been broadly stable over the past three months.

MERCER SUPER INVESTMENT TRUST QUARTERLY REPORT  

   

NOTE: Past performance is not a reliable indicator of future performance. Refer to page 5 - ’Important notes about this Report’ - for further information on the calculation of returns  

17

REAL ASSETS

Manager Returns Relative to Fund Benchmark* (+ or - %) - Before fees

Managers 3 Months 1 Year 3 Years (p.a.)

5 Years (p.a.)

Macquarie Investment -0.2 -0.7 -0.5 n/a

Colonial First State -2.0 -0.5 -0.3 n/a

Magellan -0.6 -2.9 -0.3 n/a

RARE -2.4 -7.0 -4.3 n/a

LISTED INFRASTRUCTURE Listed infrastructure over the last three years has generated consistently strong returns with investors attracted to the higher yields on offer.

Listed Infrastructure – 12 month Rolling Return

 Note The index used in the graph (above) is the UBS Global 50/50 Infrastructure and Utilities Index - in A$ (Hedged)

 

Multi-sector options’ allocations to Listed Infrastructure

Investment performance The fund underperformed the benchmark in the quarter.

Total & Excess Returns (%) 3 Months 1 Year 3 Years (p.a.)

5 Years (p.a.)

Total Returns — Before fees & taxes: 6.2 22.9 16.1 n/a

Benchmark* Return — Before fees & taxes: 7.4 25.4 17.4 n/a

Excess Return — Before fees & taxes: -1.2 -2.4 -1.3 n/a

*UBS Global 50/50 Infrastructure and Utilities Index - in A$ (Hedged)

Manager performance All managers lagged the benchmark over the June quarter during strong market conditions. RARE’s underperformance was largely due to overweight holdings in underperforming Royal Vopak, German airport Fragport AG and Brazilian electric company Eneva. Magellan’s underperformance was largely due to holding no exposure to unregulated power companies which performed strongly over the quarter.

* UBS Global 50/50 Infrastructure and Utilities Index - in A$ (Hedged), which is the benchmark used for the MSIT multi-sector options’ allocations to this asset class. Alternate benchmarks may apply to managers individually.

Proportion of assets managed at quarter end (Mercer Growth) Manager %

Macquarie Investment 33.7

Colonial First State 25.4

Magellan 25.0

RARE 15.9

Page 19: Mercer MSIT Quarterly report Q2 2014 · produced a deeper contraction in Q1 GDP, consensus forecasts for growth in 2014 and 2015 have been broadly stable over the past three months.

QUARTER ENDING JUNE 2014 

   

NOTE: Past performance is not a reliable indicator of future performance. Refer to page 5 - ’Important notes about this Report’ - for further information on the calculation of returns

 

18

REAL ASSETS

Manager Returns Relative to Fund Benchmark* (+ or - %) - Before fees

Managers 3 Months 1 Year 3 Years (p.a.)

5 Years (p.a.)

Colonial First State +0.1 +2.2 +1.3 -0.7

Macquarie -1.9 +6.8 +3.6 n/a

Westbourne Capital -0.2 -1.5 -1.0 n/a

IFM -0.4 n/a n/a n/a

UNLISTED INFRASTRUCTURE The unlisted infrastructure market continues to generate strong returns – boosted by low bond yields and demand for solid income producing assets.

Unlisted Infrastructure – 12 month Rolling Return (A$)

 Breakdown by Industry sector

Multi-sector options’ allocations to Unlisted Infrastructure

Investment performance The allocation to this asset class produced a strong positive return for the year above the CPI based benchmark.

Total & Excess Returns (%) 3 Months 1 Year 3 Years (p.a.)

5 Years (p.a.)

Total Returns — Before fees & taxes: 0.8 12.8 9.9 n/a

Benchmark* Return — Before fees & taxes: 1.8 7.9 7.3 n/a

Excess Return — Before fees & taxes: -1.0 +4.9 +2.6 n/a

*CPI + 5% (lagged one quarter)

Manager performance

During the June quarter, CFS was the strongest contributor to Fund performance, driven largely by its holdings in Bankstown Airport, Electricity North West and Anglican Water Group.

* CPI + 5% which is the benchmark used for the MSIT multi-sector options’ allocations to this asset class. Benchmark used in this report is lagged one quarter. Alternate benchmarks may apply to managers individually.

Proportion of assets managed at quarter end (Mercer Growth) Manager %

Colonial First State 26.2

Macquarie 45.4

Westbourne Capital 10.8

IFM 17.6

Page 20: Mercer MSIT Quarterly report Q2 2014 · produced a deeper contraction in Q1 GDP, consensus forecasts for growth in 2014 and 2015 have been broadly stable over the past three months.

MERCER SUPER INVESTMENT TRUST QUARTERLY REPORT  

   

NOTE: Past performance is not a reliable indicator of future performance. Refer to page 5 - ’Important notes about this Report’ - for further information on the calculation of returns  

19

REAL ASSETS

Manager Returns Relative to Fund Benchmark* (+ or - %) - Before fees

Managers 3 Months 1 Year 3 Years (p.a.)

5 Years (p.a.)

Global Commodities -6.6 -9.3 -3.5 -3.2

H3 Global Advisors +2.4 +4.3 -2.0 n/a

New Forests +1.6 +15.2 +14.7 n/a

NATURAL RESOURCES Commodity prices were mixed in the June quarter with oil and gold increasing and iron ore decreasing.

Commodities Index - A$ Hedged Cumulative Returns

 Note The indices used in the graph (above) include: Before 1/03/2012: 75% DJ UBS Commodity Index (hedged in $A) and 25% S&P Goldman Sachs Agricultural Index. From 1/03/2012: 45% DJ UBS Commodity Index (hedged to A$); 15% S&P Goldman Sachs Agricultural Index; and 40% CPI + 5%.

Multi-sector options’ allocations to Natural Resources

Investment performance The fund produced a strong positive return for the year which was above the benchmark index.

Total & Excess Returns (%) 3 Months 1 Year 3 Years (p.a.)

5 Years (p.a.)

Total Returns — Before fees & taxes: -0.1 10.8 1.0 n/a

Benchmark* Return — Before fees & taxes: -1.0 7.0 0.6 n/a

Excess Return — Before fees & taxes: +0.9 +3.8 +0.5 n/a

*45% DJ UBS Index plus 15% S&P GSCI - in A$ (Hedged) plus 40% CPI + 5%, *Prior to March 2012, Mercer Natural Resources Fund was benchmarked against the composite benchmark made up of 75% DJ UBS Commodity Index (Hedged in $A) and 25% S&P Goldman Sachs Agricultural Index. Therefore, the calculations for longer period benchmark returns are inclusive of this data.

Manager performance

H3 Global Advisors’ outperformance was largely due to its underexposure to the underperforming grains markets.

*45% DJ UBS Index plus 15% S&P GSCI - in A$ (Hedged) plus 40% CPI + 5%, which is the benchmark used for the MSIT multi-sector options’ allocations to this asset class. Alternate benchmarks may apply to managers individually.

Proportion of assets managed at quarter end (Mercer Growth) Manager %

Global Commodities 14.1

H3 Global Advisors 55.8

New Forests 30.1

Page 21: Mercer MSIT Quarterly report Q2 2014 · produced a deeper contraction in Q1 GDP, consensus forecasts for growth in 2014 and 2015 have been broadly stable over the past three months.

QUARTER ENDING JUNE 2014 

   

NOTE: Past performance is not a reliable indicator of future performance. Refer to page 5 - ’Important notes about this Report’ - for further information on the calculation of returns

 

20

ALTERNATIVES

Manager Returns Relative to Fund Benchmark* (+ or - %) - Before fees

Managers 3 Months 1 Year 3 Years (p.a.)

5 Years (p.a.)

7 Years (p.a.)

Mercer Liquid Alternatives Strategies +0.6 +1.7 n/a n/a n/a

ALTERNATIVE ASSETS Multi-sector options’ allocations to Alternative Assets

Investment performance The fund strongly outperformed its cash benchmark in the quarter and year ending 30 June 2014.

Total & Excess Returns (%) 3 Months 1 Year 3 Years (p.a.)

5 Years (p.a.)

7 Years (p.a.)

Total Returns — Before fees & taxes: 1.0 5.0 5.0 5.2 3.1

Benchmark* Return — Before fees & taxes: 0.7 2.7 3.6 3.9 4.6

Excess Return — Before fees & taxes: +0.4 +2.3 +1.4 +1.3 -1.5

*UBSWA Bank Bill Index

Manager performance Within the Mercer Liquid Alternatives Strategies the underlying Multi-Strategy, Long/Short Equity and Managed Futures investments were the key contributors to outperformance over the quarter.

* UBSWA Bank Bill Index, which is the benchmark used for the MSIT multi-sector options’ allocations to this asset class. Alternate benchmarks may apply to managers individually. .

  Manager allocation: Mercer Diversified Alternatives, as at 30 June 2014   

                                               

Proportion of assets managed at quarter end (Mercer Growth) Manager %

Mercer Liquid Alternatives Strategies 100.0

Page 22: Mercer MSIT Quarterly report Q2 2014 · produced a deeper contraction in Q1 GDP, consensus forecasts for growth in 2014 and 2015 have been broadly stable over the past three months.

MERCER SUPER INVESTMENT TRUST QUARTERLY REPORT  

   

NOTE: Past performance is not a reliable indicator of future performance. Refer to page 5 - ’Important notes about this Report’ - for further information on the calculation of returns  

21

FIXED INTEREST

Manager Returns Relative to Fund Benchmark* (+ or - %) - Before fees

Managers 3 Months 1 Year 3 Years (p.a.)

5 Years (p.a.)

BT +0.4 +0.7 n/a n/a

Challenger Crown +0.2 +1.5 n/a n/a

Macquarie +0.1 +0.2 0.0 n/a

AUSTRALIAN SOVEREIGN BONDS Australia sovereign bonds produced strong positive returns in the June quarter as yields declined, the benchmark index returned 3.3%

Australian 10-Year Bonds Yields*

Multi-sector options’ allocations to Australian Sovereign Bonds

Investment performance The fund outperformed the benchmark in the quarter and year ending 30 June 2014.

Total & Excess Returns (%) 3 Months 1 Year 3 Years (p.a.)

5 Years (p.a.)

Total Returns — Before fees & taxes: 3.4 5.3 6.4 n/a

Benchmark* Return — Before fees & taxes: 3.3 5.0 6.4 n/a

Excess Return — Before fees & taxes: +0.1 +0.2 0.0 n/a

* Benchmark: Before 1/1/2010: UBSWA Composite Bond Index (All Maturities) From 1/1/2010: UBSW Australian Treasury Bond Index 0+ (All Maturities) Index

Manager performance The underlying active manager BT outperformed the benchmark over the quarter, driven by duration positioning, cross market strategies and yield curve strategies.

* UBSW Australian Treasury Bond Index 0+ (All Maturities) — from 1/1/2010 — and UBSWA Composite Bond Index (All Maturities) — Before 1/1/2010 — are/were the benchmarks used for the investment option.

Proportion of assets managed at quarter end (Mercer Growth) Manager %

BT 13.8

Challenger Crown 50.0

Macquarie 36.2

Page 23: Mercer MSIT Quarterly report Q2 2014 · produced a deeper contraction in Q1 GDP, consensus forecasts for growth in 2014 and 2015 have been broadly stable over the past three months.

QUARTER ENDING JUNE 2014 

   

NOTE: Past performance is not a reliable indicator of future performance. Refer to page 5 - ’Important notes about this Report’ - for further information on the calculation of returns

 

22

FIXED INTEREST

Manager Returns Relative to Fund Benchmark* (+ or - %) - Before fees

Managers 3 Months 1 Year 3 Years (p.a.)

5 Years (p.a.)

Alliance Bernstein -0.6 -1.0 -0.4 n/a

Challenger 0.0 -0.2 -0.2 n/a

H20 Asset Management -1.1 +2.1 n/a n/a

OVERSEAS SOVEREIGN BONDS Overseas sovereign bonds produced strong positive returns in the June quarter as yields declined, the benchmark index returned 2.6%.

10 Year Bond Yields – UK and US*

Multi-sector options’ allocations to Overseas Sovereign Bonds

Investment performance The fund marginally underperformed the benchmark in the quarter ending 30 June 2014.

Total & Excess Returns (%) 3 Months 1 Year 3 Years (p.a.)

5 Years (p.a.)

Total Returns — Before fees & taxes: 1.9 6.5 7.7 n/a

Benchmark* Return — Before fees & taxes: 2.6 6.7 7.4 n/a

Excess Return — Before fees & taxes: -0.6 -0.2 +0.3 n/a

* Benchmark: Before 1/1/2010: Barclays Aggregate Bond Index - in A$ (Hedged) From 1/1/2010: JP Morgan Global Government Index - in A$ (Hedged

Manager performance H2O was the largest contributor to underperformance for the quarter, largely driven by their short yield curve positioning in G4 government bonds. An underweight exposure to duration in European government bond markets detracted from Alliance Bernstein’s performance.

* JP Morgan Global Government Index - in A$ (Hedged) — from 1/1/2010 — and Barclays Aggregate Bond Index - in A$ (Hedged) — Before 1/1/2010 — are/were the benchmarks used for the MSIT readymade options’ allocations to this asset class. Alternate benchmarks may apply to managers individually.

Proportion of assets managed at quarter end (Mercer Growth) Manager %^

Alliance Bernstein 28.0

Challenger 43.7

H20 Asset Management 28.3

Page 24: Mercer MSIT Quarterly report Q2 2014 · produced a deeper contraction in Q1 GDP, consensus forecasts for growth in 2014 and 2015 have been broadly stable over the past three months.

MERCER SUPER INVESTMENT TRUST QUARTERLY REPORT  

   

NOTE: Past performance is not a reliable indicator of future performance. Refer to page 5 - ’Important notes about this Report’ - for further information on the calculation of returns  

23

FIXED INTEREST

Manager Returns Relative to Fund Benchmark* (+ or - %) - Before fees

Managers 3 Months 1 Year 3 Years (p.a.)

10 Years(p.a.)

Challenger Financial Services Group 0.0 +0.2 +0.2 n/a

INFLATION LINKED BONDS Australian inflation linked bonds saw modest positive returns in the June quarter, the benchmark index increased by 0.9%.

Australian vs US Indexed Bond Yields*

 * Source: - Reserve Bank of Australia - Thomson Reuters Datastream

Multi-sector options’ allocations to Inflation Linked Bonds

Investment performance The Australian inflation linked bond fund marginally underperformed its benchmark in the quarter and year ending 30 June 2014.

Australian Inflation Linked Bonds Total & Excess Returns (%)

3 Months 1 Year 3 Years (p.a.)

7 Years (p.a.)

10 Years (p.a.)

Total Returns — Before fees & taxes: 0.9 3.8 6.2 6.1 n/a

Benchmark* Return — Before fees & taxes: 0.9 4.1 6.4 6.3 n/a

Excess Return — Before fees & taxes: -0.1 -0.3 -0.2 -0.2 n/a

* Mercer Australian Inflation Linked Bonds: UBSWA Govt Inflation Linked Bond Index (All Mat) Index

Manager performance Challenger performed broadly in line with its benchmark over the June quarter as expected.

* UBSWA Govt Inflation Linked Bond Index (All Mat) which is the benchmark used for the MSIT multi-sector options’ allocations to these asset classes.

Proportion of assets managed at quarter end (Mercer Growth) Manager %

Challenger Financial Services Group 100.0

Page 25: Mercer MSIT Quarterly report Q2 2014 · produced a deeper contraction in Q1 GDP, consensus forecasts for growth in 2014 and 2015 have been broadly stable over the past three months.

QUARTER ENDING JUNE 2014 

   

NOTE: Past performance is not a reliable indicator of future performance. Refer to page 5 - ’Important notes about this Report’ - for further information on the calculation of returns

 

24

FIXED INTEREST

Manager Returns Relative to Fund Benchmark* (+ or - %) - Before fees

Managers 3 Months 1 Year 3 Years (p.a.)

5 Years (p.a.)

Colonial First Statet +0.2 +3.0 +1.9 n/a

Wellington Management -0.2 +0.6 +0.6 n/a

AXA -0.2 n/a n/a n/a

GLOBAL CREDIT Global credit outperformed global sovereign bonds in the March quarter, the benchmark index increased by 3.0%

US 10-Year Corporate Bond Yield Spread over 10-Year Treasury Bond*

Multi-sector options’ allocations to Global Credit

Investment performance The allocation to this asset class marginally underperformed the benchmark over the quarter, and outperformed for the year ending 30 June 2014.

Total & Excess Returns (%)

3 Months 1 Year 3 Years (p.a.)

5 Years (p.a.)

Total Returns — Before fees & taxes: 2.9 10.4 n/a n/a

Benchmark* Return — Before fees & taxes: 3.0 9.4 n/a n/a

Excess Return — Before fees & taxes: -0.1 +1.0 n/a n/a

* 60% Barclays Global Aggregate Corporate Index - in A$ (Hedged); 40% Barclays Capital Global Aggregate ex Government ex Treasuries Index - in A$ (Hedged)

Manager performance Colonial First State’s positive relative performance for the quarter was assisted by the manager’s exposure in Asian credit and high yield markets. AXA lagged the benchmark over the quarter, largely due to the managers’ more conservative portfolio positioning.

* 60% Barclays Global Aggregate Corporate Index - in A$ (Hedged) and 40% Barclays Capital Global Aggregate ex Government ex Treasuries Index - in A$ (Hedged), which are the benchmarks used for the MSIT multi-sector options’ allocations to this asset class. Alternate benchmarks may apply to managers individually..

Proportion of assets managed at quarter end (Mercer Growth) Manager %

Colonial First State 41.3

Wellington Management 40.9

AXA 17.8

Page 26: Mercer MSIT Quarterly report Q2 2014 · produced a deeper contraction in Q1 GDP, consensus forecasts for growth in 2014 and 2015 have been broadly stable over the past three months.

MERCER SUPER INVESTMENT TRUST QUARTERLY REPORT   

NOTE: Past performance is not a reliable indicator of future performance. Refer to page 5 - ’Important notes about this Report’ - for further information on the calculation of returns

 

25

CASH

Manager Returns Relative to Fund Benchmark* (+ or - %) - Before fees

Managers 3 Months 1 Year 7 Years (p.a.)

10 Years(p.a.)

BlackRock n/a n/a n/a n/a

Challenger +0.1 +0.7 +0.8 n/a

NAB 0.0 +0.2 n/a n/a

CASH The Reserve Bank of Australia kept the cash rate on hold at 2.50% over the quarter ending 30 June 2014.

Australian 90-day Bank Bill Rates*

  

Multi-sector options’ allocations to Cash

Investment performance The Mercer Cash fund broadly matched the benchmark in the quarter ending 30 June 2014.

Total & Excess Returns (%) 3 Months 1 Year 3 Years (p.a)

5 Years (p.a.)

7 Years (p.a.)

10 Years (p.a

Total Returns — Before fees & taxes: 0.6 2.6 3.4 3.8 4.3 n/a

Benchmark* Return — Before fees & taxes: 0.7 2.7 3.6 3.9 4.6 n/a

Excess Return — Before fees & taxes: -0.1 -0.1 -0.1 -0.1 -0.3 n/a

Total Returns – After Fees 3 Months 1 Year 3 Years (p.a)

5 Years (p.a.)

7 Years (p.a.)

10 Years (p.a

Mercer Cash Investment Option 0.5 2.2 3.0 3.3 3.8 4.1

Manager performance Challenger term deposits slightly outperformed the benchmark over the quarter. In June BlackRock was added to the Mercer Cash Fund manager line-up.

* UBSWA Bank Bill Index which is the benchmark used for the MSIT multi-sector options’ allocations to this asset class.

Proportion of assets managed at quarter end Manager %

BlackRock 40.0

Challenger 50.9

NAB 9.1

Page 27: Mercer MSIT Quarterly report Q2 2014 · produced a deeper contraction in Q1 GDP, consensus forecasts for growth in 2014 and 2015 have been broadly stable over the past three months.

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Investors should be aware that the value of an investment in the Mercer Super Investment Trust may rise and fall from time to time and that neither MIAL nor any related companies guarantees the investment performance, earnings or return of capital invested in the Mercer Super Investment Trust. To join or invest in the Mercer Super Investment Trust, you will need to complete an application form included in, or accompanying the current Product Disclosure Statement for the Mercer Super Investment Trust which is issued by, and available from, the trustee. The information contained in this Investment Report is of a general nature only and does not take into account the personal objectives, financial situation or needs of individual investors. Accordingly, before making any investment decision, you should read the current Product Disclosure Statement for The Mercer Super Investment Trust and obtain personal financial advice from a licensed, or appropriately authorised, financial adviser. The investment returns shown for the Mercer Super Investment Trust investment options throughout this Investment Report do not take into account the unique characteristics applied to each investor (such as timing of cash flow). As a result, the actual investment returns applying to a particular investor may differ from the returns shown in this Investment Report. You should also remember that past performance should not be relied upon as a reliable indicator of future performance. Copyright 2014 Mercer LLC. All rights reserved. Report Finalised: 19 August 2014