MERCER MULTI-MANAGER FUNDS QUARTERLY REPORT · 2020-02-29 · MERCER MULTI-MANAGER FUNDS QUARTERLY...

MERCER MULTI-MANAGER FUNDS QUARTERLY REPORT THREE MONTHS TO 30 June 2016

This Report is issued by Mercer Investments (Australia) Limited ABN 66 008 612 397 (MIAL), Australian Financial Services Licence #244385 as the Responsible Entity of the Mercer Multi-Manager Funds (MMF). ‘MERCER’ and ‘Mercer SmartPath’ are Australian registered trademarks of Mercer (Australia) Pty Ltd, ABN 32 005 315 917.

MERCER MULTI-MANAGER FUNDS QUARTERLY REPORT

CONTENTS

ECONOMY & MARKETS 1 - 2

SECTORS 3-28

SHARES

Australian Shares 3-4

Australian Shares – Socially Responsible 5-6

Australian Shares – Tax Exempt Investors 7-8

Australian Small Companies 9

International Shares 10-13

Global Small Companies 14

Emerging Markets 15

PROPERTY AND INFRASTRUCTURE

Global Listed Property 16

Australian Direct Property 17

Global Listed Infrastructure 18

Global Unlisted Infrastructure 19

ALTERNATIVE ASSETS

Global Natural Resources 20

Diversified Alternatives 21

FIXED INTEREST

Australian Sovereign Bonds 22

Global Sovereign Bonds 23

Australian Inflation-Plus /Absolute Returns 24

Global Credit 25

Emerging Markets Debt 26

CASH

Cash & Term Deposits 27

DIVERSIFED FUNDS 28-32

Mercer Diversified Shares 28

Mercer Growth, Select Growth 29

Mercer High Growth 30

Mercer Income Plus, Moderate Growth 31

Mercer Conservative Growth, Defensive 32

MERCER SMARTPATH FUNDS 33-37

‘CLOSED’ FUNDS 38

Mercer Australian Listed Property 38

IMPORTANT NOTES 39

ECONOMY & MARKETS

Strong investor sentiment continued over the first two months of the quarter as commodity prices continued to improve. However, the June 2016 quarterly market news would inevitably be characterised by the referendum decision of the United Kingdom (UK) to leave the European Union (EU). The most immediate impact to financial markets following the revelation came through a plunge in the Pound Sterling – dropping to some 30-year lows the day of the referendum count. Uncertainty following the ‘Brexit’ is expected to continue as the world waits for the UK to invoke article 50 to officially begin the process of separating from the EU.

In the US, non-farm payrolls disappointed in May, growing by 38,000, significantly lower than the expected 160,000. This contributed to the decision by the Federal Open Market Committee (FOMC) to leave interest rates unchanged at its 15 June 2016 meeting, along with the uncertainty surrounding the upcoming ‘Brexit’ decision. However the payrolls turned around significantly in June. The release exceeded expectations for 180,000 by recording a strong 287,000 increase.

Chinese foreign currency reserves grew in June following a long sustained period of sell-offs due to the People’s Bank of China (PBoC) defending the overvalued Renminbi to protect against severe capital outflow. Despite the increase being relatively small (from US$3.19 trillion to US$3.21 trillion), this move indicates a potential shift of trade policy to forcing the Renminbi lower to help exporters. A move that will unlikely be taken well by major international trading partners. Adding to China’s worries was a fall in the Caixin Manufacturing purchasing managers’ index (PMI) to 48.6 in June, following a May reading of 49.2.

Despite the negative movement following the Brexit vote, Australian equities were strong across the market spectrum over the June quarter. A strong performance from commodities over April contributed to this result. Bond markets were also positive for the quarter with the Bloomberg Ausbond Composite index returning 2.9% for the period. Australian 10-year bond yields fell 51 basis points (bps) to 1.98% as the Treasury index rose 3.3%.

US Headline consumer price index (CPI) rose 0.2% MoM and 1.0% YoY to May, behind expectations for 0.3% and 1.1%, respectively. Core CPI rose 0.2% MoM and 2.2% YoY, on par with expectations for the month. The China Caixin Manufacturing PMI printed 48.6 in June, behind expectations for 49.2 and behind the 49.2 reading in May. Production and new orders both declined. Meanwhile, the official PMI decreased to 50.0 in June, in line with expectations. European core CPI estimates indicate an increase to 0.9% over the year to June, from 0.8% in May, ahead of estimates for 0.8%. The unemployment rate fell to 10.1% in May, in line with expectations.

The RBA cut the interest rate by 0.25% in May, and then left the interest rate unchanged in its June and July meetings, at 1.75%. RBA Governor, Glenn Stevens, noted in his July release that Australian growth is continuing despite a large decline in business investment. Inflation remains quite low and is expected to for some time given very subdued growth in labour costs and very low cost pressures elsewhere in the world. Lower interest rates have been supporting domestic demand and a lower exchange rate has helped the trade sector. He also noted that most markets have continued to function effectively for the initial period following the UK referendum. This wary but optimistic stance is consistent with previous recent statements. Australian seasonally adjusted employment rose 17,900 in May, ahead of expectations for 15,000 while April employment was revised up from 10,800 to 11,600. The unemployment rate remained at 5.7%, in line with market expectations. The participation rate was steady at 64.80%, behind expectations for 64.90%.

Australian Retail Sales rose 0.2% month on month (MoM) in seasonally adjusted terms over May, behind expectations for 0.3%, following a 0.2% increase in April. The strongest gains were in other (+0.5%) and the weakest was department stores (0.0%). In trend terms, retail sales rose 3.3% year on year (YoY), down from 3.4% over the year to April.The Australian house price index was released for Q1, showing a 0.2% reduction in house prices for a 6.8% 12 month growth rate ending March 2016. This trailed expectations for a 0.8% quarter increase and a 7.5% year on year increase.

The theme of political uncertainty continued closer to home as speculation was rife over the 2016 Australian election. Increasing likelihood of a minority government and further difficulty in navigating a hostile senate has led to speculation that Australia’s AAA sovereign bond rating could be at risk as the budget deficit trend looks likely to continue. A significant change in the June quarter was the rate cut by the Reserve Bank of Australia (RBA) to a record low of 1.75% in May, following lower than expected inflationary pressures. This level has been maintained through June as the RBA attempts to direct the Australian economy transition following the mining boom. OUTLOOK We remain cautious on the outlook for markets in 2016-17 – equity valuations are on the high side and bond markets offer limited value. Unlisted property offers the most attractive value of prospective medium term returns.

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QUARTER ENDING JUNE 2016

FINANCIAL MARKET RETURNS TO 30 June 2016

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

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NOTE: Past performance is not a reliable indicator of future performance. Refer to page 39 – ‘Important notes about this Report’ - for further information on the calculation of returns

SHARES

AUSTRALIAN SHARES

Australian equities were strong over the quarter despite a weak turnaround over June, with the S&P/ASX 300 Accumulation Index returning 4.0% for the period. There were positive results across the market cap spectrum, with the best performer being the Mid 50; returning 6.0% for the quarter. The best performing sectors were Materials and Healthcare (over 10%). The weakest performing sectors were Financials ex Prop (0.4%) and Consumer Staples (-3.9%). The largest positive contributors to the return of the index were BHP, CSL and Newcrest Mining with absolute returns of 12.3%, 11.0% and 35.6% respectively. On the other hand, the most significant detractors from performance were Qantas, AMP and Westpac with absolute returns of -30.7%, -9.8% and -1.6% respectively.

AUSTRALIAN SHARES FUNDS

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

Benchmark sector returns for the three months to 30 June 2016(%) S&P/ASX 300 Accumulation Index

Sector Exposure — Overweight/Underweight positions as at 30 June 2016 (%) Mercer Australian Shares Fund

Mercer Australian Shares Plus Fund

** In this Quarterly Report, ‘Australian Shares Funds’ refers to: Mercer Australian Shares Fund

(the ‘Core Fund’) Mercer Australian Shares Plus Fund

(the ‘Plus Fund’) Only the sector exposure differs between the Funds. Benchmark weights etc. apply to both Funds.

3

QUARTERLY ENDING JUNE 2016

NOTE: Past performance is not a reliable indicator of future performance Refer to page 39 - ‘Important notes about this Report’ - for further information on the calculation of returns

SHARES

Manager Returns Relative to Fund Benchmark* (+ or - %) - Before fees Managers 3 Months 1 Year 3 Years

(p.a.) 5 Years

(p.a.) Ausbil Dexia -0.3 +1.0 +1.3 +1.3

Fidelity +3.7 +21.6 n/a n/a

Goldman Sachs -1.3 -0.5 n/a n/a

Greencape -0.8 -1.0 n/a n/a

JCP -1.1 -0.3 +0.1 +0.3

Nikko -2.2 -2.5 +0.4 +0.4

Plato -0.5 -1.7 n/a n/a

Vinva -0.1 +2.2 +0.7 n/a

Wavestone -1.3 +2.4 n/a n/a

AUSTRALIAN SHARES AUSTRALIAN SHARES FUNDS**

Top 10 Australian share holdings Listed (right) are the 10 largest Australian share holdings in aggregate within the Australian shares funds at quarter end compared to their respective benchmarks.

Investment performance The Fund underperformed the benchmark in the quarter mainly due to stock selection decisions. At the sector level the fund was underweight the better performing utilities sector but this was offset by being underweight the weaker performing financials and consumer staples sectors.

Manager performance

Nikko and Wavestone underperformed over the June quarter. Nikko’s underperformance was largely driven by overweight holdings in Henderson and Qantas, while detractors for Wavestone were overweight holdings in 3P Learning, BT Investment Management and Sirtex Medical. Fidelity’s positioning outside the largest 50 names in the ASX provided a strong tailwind to its performance contribution over the quarter.

* S&P/ASX 300 Accumulation Index, which is the benchmark used for the fund . Alternate benchmarks may apply to managers individually.

Mercer Australian Shares Fund 3 Months 1 Year 3 Years (p.a.)

5 Years (p.a.)

Total Returns — Before fees : 3.2 1.1 8.1 7.6

Benchmark* Return : 4.0 0.9 7.7 7.2

Excess Return — Before fees : -0.8 +0.2 +0.4 +0.4

Mercer Australian Shares Plus Fund 3 Months 1 Year 3 Years (p.a.)

5 Years (p.a.)




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

5 Years (p.a.)

Mercer Australian Shares Fund 2.9 0.2 7.1 6.5

Mercer Australian Shares Plus Fund 2.8 0.8 7.1 6.3

* S&P/ASX 300 Accumulation Index , which is the benchmark used for the fund . Alternate benchmarks may apply to managers individually

Proportion of assets managed at quarter end

Managers Core Fund

Plus Fund

Ausbil Dexia 11.4 16.6

Fidelity 2.4 3.6

Goldman Sachs 9.9 14.4

Greencape 7.9 11.5

JCP 17.4 0.0

Nikko 11.3 16.5

Plato 17.5 0.0

Vinva 13.0 23.9

Wavestone 9.2 13.5

Mercer Australian Shares Fund % of

Fund % of

B’mark

Mercer Australian Shares Plus Fund % of Fund

% of B’mark

Commonwealth Bank 8.4 9.1 Commonwealth Bank 8.0 9.1

Westpac Banking Corporation 7.6 7.0 Westpac Banking Corporation 7.8 7.0

Telstra Corporation 5.1 4.8 Telstra Corporation 5.1 4.8

National Australia Bank 5.0 4.8 National Australia Bank 5.0 4.8

ANZ Banking Group 4.6 5.0 ANZ Banking Group 4.5 5.0

BHP Billiton 3.5 4.3 CSL 2.9 3.7

CSL 3.2 3.7 BHP Billiton 2.8 4.3

Wesfarmers 2.6 3.2 Macquarie Group 2.4 1.7

Macquarie Group 2.2 1.7 Aristocrat Leisure 2.4 0.6

Transurban Group 1.9 1.7 Wesfarmers 1.9 3.2

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SHARES

AUSTRALIAN SHARES – SOCIALLY RESPONSIBLE Australian equities were strong over the quarter despite a weak turnaround over June, with the S&P/ASX 300 Accumulation Index returning 4.0% for the period. There were positive results across the market cap spectrum, with the best performer being the Mid 50; returning 6.0% for the quarter. The best performing sectors were Materials and Healthcare (over 10%). The weakest performing sectors were Financials ex Prop (0.4%) and Consumer Staples (-3.9%). The largest positive contributors to the return of the index were BHP, CSL and Newcrest Mining with absolute returns of 12.3%, 11.0% and 35.6% respectively. On the other hand, the most significant detractors from performance were Qantas, AMP and Westpac with absolute returns of -30.7%, -9.8% and -1.6% respectively.

MERCER SOCIALLY RESPONSIBLE AUSTRALIAN SHARES FUND

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

Sector Exposure — Overweight/Underweight positions as at 30 June 2016(%)

Benchmark sector returns for the three months to 30 June 2016 (%) S&P/ASX 300 Accumulation Index

5



SHARES

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

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

5 Years (p.a.)

BT -2.4 -2.4 +0.7 +0.2 Acadian -0.5 n/a n/a n/a Perpetual -4.1 +5.4 +4.4 +8.0

AUSTRALIAN SHARES – SOCIALLY RESPONSIBLE MERCER SOCIALLY RESPONSIBLE AUSTRALIAN SHARES FUNDS

Top 10 Australian share holdings Listed (right) are the 10 largest Australian share holdings in aggregate within the Mercer Socially Responsible Australian Shares Fund at quarter end compared to the benchmark.

Investment performance

Total & Excess Returns (%)

3 Months

1 Year 3 Years

(p.a.) 5 Years (p.a.)




*S&P/ASX 300 Accumulation Index

Total Returns — After fees : 1.8 1.1 8.7 8.4

Manager performance

All managers underperformed over the quarter. Perpetual was the key detractor from performance, due in part to its overweight exposure to Henderson Group which sold off post the UK referendum outcome. Overweight exposure to Qantas and underweight holdings in Newcrest Mining were significant detractors from BT and Acadian’s performance over the quarter.

*S&P/ASX 300 Accumulation Index, which is the benchmark used for the Fund. Alternate benchmarks may apply to managers individually

Proportion of assets managed at quarter end Manager %

BT 36.6 Acadian 38.1 Perpetual 25.3

Stock % of

Fund % of

Benchmark

Commonwealth Bank 8.6 9.1

ANZ Banking Group 7.0 5.0

Westpac Banking Corporation 6.6 7.0

National Australia Bank 3.9 4.8

Telstra Corporation 3.8 4.8

CSL 2.6 3.7

BHP Billiton 2.5 4.3

Freedom Foods Group 2.2 0.0

Macquarie Group 2.0 1.7

QBE Insurance Group 1.7 1.0

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SHARES

AUSTRALIAN SHARES – TAX EXEMPT INVESTORS Australian equities were strong over the quarter despite a weak turnaround over June, with the S&P/ASX 300 Accumulation Index returning 4.0% for the period. There were positive results across the market cap spectrum, with the best performer being the Mid 50; returning 6.0% for the quarter. The best performing sectors were Materials and Healthcare (over 10%). The weakest performing sectors were Financials ex Prop (0.4%) and Consumer Staples (-3.9%). The largest positive contributors to the return of the index were BHP, CSL and Newcrest Mining with absolute returns of 12.3%, 11.0% and 35.6% respectively. On the other hand, the most significant detractors from performance were Qantas, AMP and Westpac with absolute returns of -30.7%, -9.8% and -1.6% respectively.

MERCER AUSTRALIAN SHARES FUND FOR TAX EXEMPT INVESTORS

Benchmark weights by sector (%) S&P/ASX 300 Accumulation Index : Grossed up for franking credits

Sector Exposure — Overweight/Underweight positions as at 30 June 2016 (%)

Benchmark sector returns for the three months to 30 June 2016 (%) S&P/ASX 300 Accumulation Index: Grossed up for Franking Credits

7



SHARES



5 Years (p.a.)

Macquarie 0.0 +1.4 +0.7 n/a Plato 0.0 +0.3 +1.9 n/a JCP -1.9 +0.9 0.0 n/a

AUSTRALIAN SHARES – TAX EXEMPT INVESTORS MERCER AUSTRALIAN SHARES FUND FOR TAX EXEMPT INVESTORS

Top 10 Australian share holdings Listed (right) are the 10 largest Australian share holdings in aggregate within the Mercer Australian Shares Tax Exempt Fund at quarter end compared to the benchmark.



3 Months

1 Year 3 Years


Total Returns — Before fees : 3.9 3.5 10.3 n/a

Benchmark* Return : 4.3 2.5 9.3 n/a

Excess Return — Before fees : -0.4 +1.0 +1.0 n/a

*S&P/ASX 300 Accumulation Index: Grossed up for franking credits.

Total Returns — After fees : 3.5 2.6 8.9 n/a

Manager performance

Over the quarter Macquarie and Plato each performed largely in line with the benchmark while JCP underperformed. JCP’s underperformance over the quarter was largely due to overweight holdings in AMP and QBE Insurance as well as an underweight exposure to Newcrest Mining. Plato’s performance was relatively flat as the underperformance through the April low quality rally was made back in May and June as the managers’ income oriented factors outperformed.

*S&P/ASX 300 Accumulation Index: Grossed up for franking credits.

Proportion of assets managed at quarter end Manager %

Macquarie 49.9 Plato 30.0 JCP 20.1

Stock % of

Fund % of

Benchmark

Commonwealth Bank 9.4 9.1

Westpac Banking Corporation 6.8 7.0

Telstra Corporation 4.9 4.8

ANZ Banking Group 4.6 5.0

National Australia Bank 4.4 4.8

Wesfarmers 3.3 3.2

BHP Billiton 3.2 4.3

CSL 3.1 3.7

Rio Tinto 2.3 1.4

Macquarie Group 1.9 1.7

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SHARES


Managers 3 Months 1 Year 3 Years

(p.a.) 5 Years

(p.a.) Avoca -1.5 -3.1 n/a n/a IFM -1.4 +11.3 n/a n/a CFS -8.0 -18.3 n/a n/a Perennial -5.0 -7.7 0.0 +2.5

AUSTRALIAN SHARES – SMALL COMPANIES Small companies performed well in the quarter, mainly due to a rally in small resources stocks, in particular, the gold sector.

Australian small vs ‘large’ company performance

MERCER AUSTRALIAN SMALL COMPANIES FUND



3 Months

1 Year 3 Years (p.a.)

5 Years (p.a.)



Excess Return — Before fees : -3.6 -3.7 -0.5 +3.5

* S&P/ASX Small Ordinaries Accumulation Index.


Manager performance

All managers in the Australian Small Companies Fund underperformed during what proved to be a difficult quarter for active management. An underweight exposure to gold stocks as well as overweight holdings in Pulse Health and Sundance Energy contributed to Perennial’s underperformance over the quarter. Avoca’s underperformance was largely due to overweight holdings in Virgin Australia and Henderson Group and not holding gold producer Northern Star Resources.

* S&P/ASX Small Ordinaries Accumulation Index, which is the benchmark used for the fund.


Manager % Avoca 21.1 IFM 33.3 CFS 20.2 Perennial 25.4

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SHARES

INTERNATIONAL SHARES

The broad MSCI World ex Australia Index was up 1.7% in hedged terms and up 4.4% in unhedged terms over the quarter, as the Australian dollar depreciated against the major currencies with the exception of the Pound Sterling. The strongest performing sectors were Energy and Healthcare, while Consumer Discretionary and Financials (1.2%) were weak. The Australian dollar depreciated against most major currencies over the June quarter except for the Pound Sterling, finishing at US$0.745 with a Trade Weighted Index of 62.5. The Australian dollar depreciated 1.0% against the Euro, 11.3% against the Yen and 3.2% against the US dollar, but appreciated 4.0% against the Pound Sterling following its post-Brexit dive. On a trade-weighted basis, the local currency decreased 3.0% over the quarter.

INTERNATIONAL SHARES FUNDS**

Benchmark weights by sector (%) MSCI World Index (ex Australia) - in $A with net dividends reinvested

Benchmark sector returns for the three months to 30 June 2016 (%) MSCI World Index (ex Australia) - in $A with net dividends reinvested

Sector Exposure — Overweight/Underweight positions as at 30 June 2016 (%)

Mercer International Shares Fund Mercer Hedged International Shares Fund

Mercer International Shares Plus Fund Mercer Hedged International Shares Plus Fund

** In this Quarterly Report, ‘International Shares Funds’ refers to: Mercer International Shares Fund Mercer Hedged International Shares Fund

(the ‘Core Funds’) Mercer International Shares Plus Fund Mercer Hedged International Shares Plus Fund

(the ‘Plus Funds’) Benchmark weights etc. apply to all four Funds.

10



SHARES

INTERNATIONAL SHARES INTERNATIONAL SHARES FUNDS**

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

Top 10 countries’ benchmark returns for the three months to 30 June 2016 (%) MSCI World Index (ex Australia) - in A$ with net dividends reinvested

Exposure to top 10 countries - Overweight/Underweight positions as at 30 June 2016 (%)


Mercer International Shares Plus Fund Mercer Hedged International Shares Plus Fund

** In this Quarterly Report, ‘International Shares Funds’ refers to:


(the ‘Core Funds’) Mercer International Shares Plus Fund Mercer Hedged International Shares Plus Fund

(the ‘Plus Funds’) Benchmark weights etc. apply to all four Funds.

11



SHARES


Managers 3 Months

1 Year

3 Years (p.a.)

5 Years (p.a.)

Arrowstreet +1.3 +0.1 +2.4 n/a

Baillie Gifford -1.4 -2.0 +0.2 n/a

BlackRock +1.3 +5.6 +7.1 n/a

Hexavest +3.0 +10.2 +2.0 +1.5

Schroder +0.1 +1.2 0.0 +0.3 LSV Asset Management n/a n/a n/a n/a

INTERNATIONAL SHARES MERCER INTERNATIONAL SHARES FUND

MERCER HEDGED INTERNATIONAL SHARES FUND

Top 10 International share holdings Ten largest international share holdings held in aggregate within the Mercer International Shares Fund and Mercer Hedged International Shares Fund as at quarter end, compared to their respective benchmarks:


Note that a composite benchmark was used for this fund from its inception to August 2007. In that month, the benchmark was standardised to the 1 MSCI World Index (ex Australia) - in A$ with net dividends reinvested. 2 MSCI World Index (ex Australia) - in Hedged A$ with net dividends reinvested

Manager performance

Hexavest’s outperformance over the quarter was largely due to its overweight exposure to the Materials sector and underweight exposure to the Information Technology sector. An overweight exposure to the Canadian Materials sector and an underweight to the Japanese Consumer Discretionary sector were the key contributors to Arrowstreet’s outperformance over the quarter. During the quarter, LSV were added to the configuration.

* MSCI World Index (ex Australia) - in A$ with net dividends reinvested, which is the benchmark used for the unhedged funds.

Mercer International Shares Fund 3 Months 1 Year 3 Years (p.a.)

5 Years (p.a.)

Total Returns — Before fees: 4.6 1.0 15.4 14.6

Benchmark1 Return — Before fees: 4.4 0.4 14.8 14.9

Excess Return — Before fee: +0.2 +0.6 +0.6 -0.3

Mercer Hedged International Shares Fund 3 Months 1 Year 3 Years (p.a.)

5 Years (p.a.)

Total Returns — Before fees: 1.9 -1.1 11.5 10.9

Benchmark2 Return — Before fees: 1.7 -1.4 10.8 11.2

Excess Return — Before fees : +0.2 +0.3 +0.7 -0.3


5 Years (p.a.)

Mercer International Shares Fund 4.3 0.9 14.6 13.7

Mercer Hedged International Shares Fund 1.7 -1.7 10.3 9.6


Managers %

Arrowstreet 22.8 Baillie Gifford 17.8 BlackRock 2.0 Hexavest 16.6

Schroder 25.6

LSV Asset Management 15.2

Stock

% of Fund

% of Benchmark

Facebook Incorporation 1.1 0.8

Apple 1.1 1.7

Microsoft Corporation 1.0 1.2

Amazon 1.0 0.9

Pfizer Inc 0.9 0.7

Nestle S.A. 0.9 0.8

Philip Morris International Incorporation 0.9 0.5

Cisco Systems 0.9 0.5

Johnson & Johnson 0.9 1.1

Pepsico Inc. 0.8 0.5

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NOTE: Past performance is not a reliable indicator of future performance. Refer to page 39 - ‘Important notes about this Report’ - for further information on the calculation of returns

SHARES


Managers 3 Months

1 Year

3 Years (p.a.)

5 Years (p.a.)

Arrowstreet +1.3 +0.1 +2.4 n/a

Baillie Gifford -1.4 -2.0 +0.2 n/a

BlackRock +1.3 +5.6 +7.1 n/a

Hexavest +3.0 +10.2 +2.0 +1.5

Schroder +0.1 +1.2 0.0 +0.3 LSV Asset Management n/a n/a n/a n/a

INTERNATIONAL SHARES MERCER INTERNATIONAL SHARES PLUS FUND MERCER HEDGED INTERNATIONAL SHARES PLUS FUND

Top 10 International share holdings Ten largest international share holdings held in aggregate within the Mercer International Shares Plus Fund and Mercer Hedged International Shares Plus Fund as at quarter end, compared to their respective benchmarks:


Note that a composite benchmark was used for this fund from its inception to August 2007. In that month, the benchmark was standardised to the 1 MSCI World Index (ex Australia) - in A$ with net dividends reinvested. 2 MSCI World Index (ex Australia) - in Hedged A$ with net dividends reinvested

Manager performance

Hexavest’s outperformance over the quarter was largely due to its overweight exposure to the Materials sector and underweight exposure to the Information Technology sector. An overweight exposure to the Canadian Materials sector and an underweight to the Japanese Consumer Discretionary sector were the key contributors to Arrowstreet’s outperformance over the quarter. During the quarter, LSV were added to the configuration.

*MSCI World Index (ex Australia) - in A$ with net dividends reinvested, which is the benchmark used for the funds.

Mercer International Shares Plus Fund 3 Months 1 Year 3 Years

(p.a.) 5 Years

(p.a.)


Benchmark1 Return — Before fees: 4.4 0.4 14.8 14.9

Excess Return — Before fees +0.2 +0.3 +0.7 -0.7

Mercer Hedged International Shares Plus Fund 3 Months 1 Year 3 Years (p.a.)

5 Years (p.a.)

Total Returns — Before fees: 1.9 -1.5 11.5 10.5

Benchmark2 Return — Before fees: 1.7 -1.4 10.8 11.2

Excess Return — Before fees: +0.2 -0.1 +0.7 -0.7


5 Years (p.a.)

Mercer International Shares Plus Fund 5.0 0.2 14.4 13.0

Mercer Hedged International Shares Plus Fund 1.6 -2.3 10.2 9.1


Manager % Arrowstreet 30.6

Baillie Gifford 23.9

BlackRock 2.7

Hexavest 22.3

Schroder 0.0

LSV Asset Management 20.5

Stock % of

Fund % of

Benchmark

Facebook Incorporation 1.4 0.8

Philip Morris International Incorporation 1.1 0.5

Amazon 1.1 0.9

Cisco Systems 1.0 0.5

Pfizer Inc 0.9 0.7

Citigroup Inc. 0.8 0.4

Nestle S.A. 0.8 0.8

Pepsico Inc. 0.8 0.5

Naspers 0.8 0.0

Microsoft Corporation 0.8 1.2

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SHARES



5 Years (p.a.)

Allianz -0.9 -4.4 n/a n/a Arrowstreet +0.7 +2.0 +3.0 n/a Fidelity -2.3 -2.2 -1.0 -0.3

GLOBAL SHARES – SMALL COMPANIES

Overseas small vs ‘large’ company performance

MERCER GLOBAL SMALL COMPANIES SHARES FUND



3 Months


5 Years (p.a.)

Total Returns — Before fees : 4.0 -2.1 15.6 16.1

Benchmark* Return : 5.0 -0.7 15.3 14.7

Excess Return — Before fees : -1.0 -1.4 +0.3 +1.4

* MSCI World Small Cap Index.

Total Returns — After fees : 3.7 -3.2 14.3 14.9

Manager performance

Arrowstreet’s outperformance over the quarter was largely driven by asset allocation, in particular its overweight exposures to the Canadian Materials sector and the US Consumer Staples sector. Fidelity’s underperformance was largely driven by stock selection, in particular overweight exposures to Cavium, Bruker and Natural Grocers.

* MSCI World Small Cap Index, which is the benchmark used for the fund.


Manager % Allianz 29.8 Arrowstreet 30.9 Fidelity 39.3

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SHARES



5 Years (p.a.)

AQR +0.1 -0.2 n/a n/a BlackRock +1.6 +3.0 +1.7 +1.8 Investec +0.9 -0.8 n/a n/a Macquarie -0.3 -1.5 n/a n/a

EMERGING MARKETS The broad MSCI World ex Australia Index was up 1.7% in hedged terms and up 4.4% in unhedged terms over the quarter, as the Australian dollar depreciated against the major currencies with the exception of the Pound Sterling. The strongest performing sectors were Energy (+14.2%) and Healthcare (+9.1%), while Consumer Discretionary (-0.8%) and Financials (1.2%) were the worst performers. In Australian dollar terms, the Global Small Cap sector rose 5.1% while Emerging Markets were up, returning 4.0%.

Emerging Markets vs ‘large’ company performance

Top 10 benchmark weights (MSCI Emerging Markets Index

MERCER EMERGING MARKETS SHARES FUND


Total & Excess Returns (%) 3

Months 1

Year 3 Years

(p.a.) 5 Years

(p.a.) Total Returns — Before fees : 5.0 -8.1 6.1 4.4

Benchmark* Return : 4.0 -9.2 5.4 3.5

Excess Return — Before fees : +1.0 +1.1 +0.7 +0.9

*MSCI Emerging Markets Index

Total Returns — After fees : 4.6 -9.2 5.0 3.7

Manager performance

Investec’s outperformance over the June quarter was largely driven by its exposure within the Information Technology sector; in particular holdings in NetEase, Tencent, Silicon Motion Technology and Samsung Electronics. The majority of Blackrock’s outperformance came in May as all underlying factor signals contributed positively. Country selection and big data signals were key drivers of outperformance.

* MSCI Emerging Markets Index, which is the benchmark used for the fund.


Manager % AQR 12.2 BlackRock 38.1 Investec 25.1 Macquarie 24.6

15



REAL ASSETS



5 Years (p.a.)

Brookfield +0.6 -3.6 +1.8 n/a Principal Global Investors -0.9 -1.8 +1.1 n/a CenterSquare +0.5 +1.7 +1.4 n/a

GLOBAL LISTED PROPERTY The broad MSCI World ex Australia Index was up 1.7% in hedged terms and up 4.4% in unhedged terms over the quarter, as the Australian dollar depreciated against the major currencies with the exception of the Pound Sterling. The strongest performing sectors were Energy (+14.2%) and Healthcare (+9.1%), while Consumer Discretionary (-0.8%) and Financials (1.2%) were the worst performers. In Australian dollar terms, the Global Small Cap sector rose 5.1% while Emerging Markets were up, returning 4.0%.

Australian Listed vs global listed property cumulative performance

Note The indices used in the graph (above) are:

1. S&P/ASX 200 Property Trusts Accumulation Index for Australian Listed Property 2. FTST EPRA/NAREIT Developed Hedged $A index

MERCER GLOBAL LISTED PROPERTY FUND



3 Months

1 Year 3 Years




Excess Return — Before fees : 0.0 -1.0 +1.4 +0.6

*FTSE EPRA/NAREIT Developed Hedged $A Index


Manager performance

Stock selection within the US, UK and Australian markets were key contributors to CenterSquare’s outperformance over the quarter, in particular within the US shopping centre and apartments sectors. Brookfield’s outperformance was largely driven by stock selection within the Diversified sector and an underweight exposure to the Self-Storage sector.

* FTSE EPRA/NAREIT Developed Hedged $A Index Note: The Mercer Australian Listed Property Fund is closed to new investors.


Manager % Brookfield 25.1 Principal Global Investors 37.2 CenterSquare 37.7

16



REAL ASSETS



5 Years (p.a.)

Charter Hall Industrial +0.4 +5.1 n/a n/a Charter Hall Retail +5.3 +3.0 n/a n/a Goodman +1.0 +13.7 +8.6 +5.1 Investa -0.5 +3.7 +2.2 +1.2 Lend Lease Investment Management +0.2 -1.2 -0.6 -0.1

AUSTRALIAN DIRECT PROPERTY The June quarter marked another positive quarter for Australian property. Domestic Real Estate Investment Trusts (REITs) returned 9.2%, while Global REITs returned 4.0% on a fully hedged basis. The unlisted property sector rose 2.5% over the quarter on a one-month lagged basis. Meanwhile, Global Core Listed Infrastructure 50/50 index returned 5.6% for the quarter in hedged terms.

Direct Property – 12 month Rolling Benchmark Return

Note: The indices used in the graph (above) are: Before1/9/2009: Mercer/IPD Australian Pooled Property Fund Index After 1/1/2016 CPI +4%

MERCER AUSTRALIAN DIRECT PROPERTY FUND



3 Months


5 Years (p.a.)



Excess Return — Before fees : +0.9 +3.4 +1.7 +1.1 * Before 1/9/2009: Mercer Unlisted Property Funds Index From 1/9/2009: Mercer/IPD Australian Pooled Property Fund Index From 1/1/2016 CPI + 4%


Manager performance

All managers provided positive gross returns over the June quarter, led by Charter Hall Retail which experienced multiple positive revaluations on underlying properties. Goodman and Investa also experienced positive revaluations across their portfolios during the period, including 420 George Street Sydney and 242 Exhibition Street Melbourne within Investa’s portfolio.

* CPI +4% (from 1/1/2016). 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 fund.


Manager % Charter Hall Industrial 26.0 Charter Hall Retail 19.8 Goodman 2.3 Investa 36.7 Lend Lease Investment Management 15.2

17



REAL ASSETS



5 Years (p.a.)

Colonial First State +0.7 +4.1 +2.4 +1.4 RARE -1.8 -9.9 -4.9 -4.2

GLOBAL LISTED INFRASTRUCTURE The June quarter marked another positive quarter for Australian property. Domestic Real Estate Investment Trusts (REITs) returned 9.2%, while Global REITs returned 4.0% on a fully hedged basis. The unlisted property sector rose 2.5% over the quarter on a one-month lagged basis. Meanwhile, Global Core Listed Infrastructure 50/50 index returned 5.6% for the quarter in hedged terms.

Listed Infrastructure – 12 month Rolling Return

Note The index used in the graph (above) is the FTSE Global Core 50/50 Index.

MERCER GLOBAL LISTED INFRASTRUCTURE FUND



3 Months

1 Year 3 Years





*The benchmark used for this fund was the UBS Global 50/50 Infrastructure and Utilities Index - in A$ (Hedged) until 1/4/2015, thereafter FTSE Global Core 50/50 Index


Manager performance

Colonial First State outperformed over the June quarter largely due to its underweight exposure to the Satellite sector and its overweight exposures to the Electric Utilities and Highways and Rail sectors. RARE’s underperformance was largely driven by negative contributions from its holdings in the Toll Roads, Airports and Ports sectors.

* The benchmark used for this fund was the UBS Global 50/50 Infrastructure and Utilities Index - in A$ (Hedged) until 1/4/2015, thereafter FTSE Global Core 50/50 Index. Alternate benchmarks may apply to managers individually.


Manager %

Colonial First State 65.8 RARE 34.2

18



REAL ASSETS



5 Years (p.a.)

Macquarie +0.5 +17.4 +11.0 +7.7 Colonial First State +5.7 +17.4 +7.8 +5.2 IFM +1.4 +17.1 n/a n/a KKR +3.7 -2.6 n/a n/a MAIF Investment Trust +11.5 n/a n/a n/a CFS Finerge n/a n/a n/a n/a

GLOBAL UNLISTED INFRASTRUCTURE The June quarter marked another positive quarter for Australian property. Domestic Real Estate Investment Trusts (REITs) returned 9.2%, while Global REITs returned 4.0% on a fully hedged basis. The unlisted property sector rose 2.5% over the quarter on a one-month lagged basis. Meanwhile, Global Core Listed Infrastructure 50/50 index returned 5.6% for the quarter in hedged terms.

Unlisted Infrastructure – 12 month Rolling Return (A$)

Breakdown by Industry sector

MERCER GLOBAL UNLISTED INFRASTRUCTURE FUND



3 Months


5 Years (p.a.)



Excess Return — Before fees : +2.7 +15.5 +7.8 +5.6 *CPI + 5% (lagged one quarter)

Total Returns — After fees : 3.9 19.2 12.7 10.6 Manager performance Colonial First State’s outperformance over the quarter was assisted by a positive revaluation on underlying asset Finerge. The Macquarie Asia Infrastructure Fund’s performance was also assisted by positive revaluations. Over the quarter multiple acquisitions were made including the purchase of Vector Gas and Maui Pipeline within the Colonial First State portfolio as well as the purchase of Nippon Vopak within the Macquarie Asian Infrastructure portfolio.

* CPI + 5% which is the benchmark used for the fund. Benchmark used in this report is lagged one quarter. Alternate benchmarks may apply to managers individually.


Manager %

Macquarie 35.2 Colonial First State 27.3 IFM 15.4 KKR 9.1 MAIF Investment Trust 9.7 CFS Finerge 3.2

19



REAL ASSETS



5 Years (p.a.)

Global Commodities -0.6 -4.3 -0.8 -0.8 H3 Global Advisors +4.8 -5.5 -4.9 -4.8 New Forests -6.1 +13.1 +14.8 +14.7

GLOBAL NATURAL RESOURCES Commodities enjoyed a strong rise during the quarter, particularly oil.

Commodities Index - A$ Hedged Cumulative Returns

Note The indices used in the graph (above) are a 75%/25% combination of the: - 75%: Dow Jones-UBS Index (DJ UBS Index), which tracks broad commodities - 25% S&P GSCI, which tracks agricultural commodities

MERCER GLOBAL NATURAL RESOURCES FUND



3 Months

1 Year 3 Years


Total Returns — Before fees : 8.3 -3.7 -1.1 -2.1

Benchmark* Return : 8.0 -4.0 -2.3 -2.4


*45% DJ UBS Index plus 15% S&P GSCI - in A$ (Hedged) plus 40% CPI + 5%,

Total Returns — After fees : 8.0 -4.5 -2.0 -3.0

Manager performance

H3 provided a strong contribution to Fund performance in absolute terms as commodity markets staged a comeback with energy prices rebounding, however strong gains in the natural gas spot markets impacted on H3’s relative returns. Soft commodities were also strong over the quarter, led by soybean meal with prices boosted by adverse weather conditions in Argentina and Brazil, severely impacted supply.

*45% DJ UBS Index plus 15% S&P GSCI - in A$ (Hedged) plus 40% CPI + 5%, which is the benchmark used for the fund. Alternate benchmarks may apply to managers individually.

1 Track record partly reflects manager’s previous inclusion in alternative assets.


Manager % Global Commodities 19.2 H3 Global Advisors 50.6 New Forests 30.2

20



ALTERNATIVES



5 Years (p.a.)

Mercer Liquid Alternatives Strategies -1.3 -5.1 +1.7 n/a

Babson Capital Australia -0.6 -25.5 -23.9 -20.7

ALTERNATIVE ASSETS MERCER DIVERSIFIED ALTERNATIVES FUND


Total Returns (%)

3 Months

1 Year 3 Years


Total Returns — After fees and costs 1 : -0.8 -3.8 2.7 3.2

Benchmark* Return : 0.6 2.2 2.5 3.1 *Bloomberg Bank Bill Index 1 The ‘Total return – after fees and costs’ (ie management costs) allows for a deduction of the investment management fee expense allowance and any applicable performance based fee. See the PDS for details of the current fees and costs.

Manager performance

Within the Mercer Liquid Alternatives Strategies Fund the largest contributors to performance over the quarter were the Macro focused manager GMO, Long/Short equity manager Marshall Wallace and Relative Value manager DW Partners. Relative Value manager Makuria was a largest detractor due to its exposure to UK companies.

* Bloomberg Bank Bill Index, which is the benchmark used for the fund. Alternate benchmarks may apply to managers individually.

Manager Allocation Mercer Diversified Alternatives as at 30 June 2016

21



FIXED INTEREST



5 Years (p.a.)

BT +0.5 +1.1 +0.6 n/a Challenger Crown +0.1 +0.6 +0.8 n/a Macquarie 0.0 -0.2 0.0 0.0

AUSTRALIAN SOVEREIGN BONDS Domestically, Australian 10-year bond yields fell 51bps to 1.98% while five-year (-43bps to 1.65%) and two-year (-30bps to 1.60%) bond yields also fell. As a result, Australian bond returns provided some return relief for investors. All Bloomberg Ausbond indices returned positive results with the Treasury index performing best – returning 3.3% for the quarter. The Bloomberg Ausbond Composite Bond index returned 2.9%.

Australian 10-Year Bonds Yields*

* Source: Thomson Reuters Datastream

MERCER AUSTRALIAN SOVEREIGN BOND FUND



3 Months

1 Year 3 Years





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


Manager performance

The underlying active manager BT outperformed the benchmark over the quarter, largely due to positive contributions from its duration and yield curve strategies.

* Bloomberg 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 fund.

Note: Performance history includes the returns of the Mercer Australian Fixed Interest Fund (now closed to new investors), from which the Mercer Australian Sovereign Bond Fund evolved.


Manager % BT 25.6 Challenger Crown 48.9 Macquarie 25.5

22



FIXED INTEREST



5 Years (p.a.)

Challenger Financial Services

0.0 -0.2 -0.1 -0.2 H20 Asset Management -1.3 -1.6 +1.8 n/a Colchester Global Investors n/a n/a n/a n/a

GLOBAL SOVEREIGN BONDS Global sovereign bonds produced relatively strong returns over the June quarter for hedged Australian investors, with yields broadly falling over the period, particularly later in the quarter. Ten-year bond yields fell across most developed economies as demonstrated by Germany (-28bps to -0.13%), the US (-29bps to 1.49%), Japan (-19bps to -0.23%) and the UK (-52bps to 0.90%). Two-year bond yields saw a similar fate with the US (-18bp to 0.58%), the UK (-34bps to 0.11%), Japan (-9bps to -0.30%) and Germany (-17bps to -0.65%) bond yields falling.

10 Year Bond Yields – UK and US*

* Source: Thomson Reuters Datastream

MERCER GLOBAL SOVEREIGN BOND FUND



3 Months

1 Year 3 Years





* 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 detractor over the quarter, largely due to its short G4 government bond duration as core bond markets rallied on poor investor sentiment. An overweight to Italian and Portuguese government bonds also detracted from performance. During June AB was replaced within the configuration with Colchester Global Investors.

* 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 fund. Alternate benchmarks may apply to managers individually.


Manager % Challenger 42.8 H20 Asset Management 30.7 Colchester Global Investors 26.4

23



FIXED INTEREST



5 Years (p.a.)

Ardea +0.1 -2.3 n/a n/a

Challenger -1.1 -0.7 0.0 +0.1

QIC -1.1 -2.0 n/a n/a



5 Years (p.a.)

Kapstream +0.7 +1.1 n/a n/a

Insight +0.5 +0.7 n/a n/a

Pioneer -0.3 n/a n/a n/a

AUSTRALIAN INFLATION PLUS / ABSOLUTE RETURN BONDS Real bond yields drifted lower in the quarter.

Australian vs US Indexed Bond Yields*

* Source: - Reserve Bank of Australia (Aust.) - Thomson Reuters Datastream

MERCER AUSTRALIAN INFLATION PLUS / ABSOLUTE RETURN BONDS


Mercer Australian Inflation Plus Total & Excess Returns (%) 3 Months 1 Year 3 Years

(p.a.) 5 Years

(p.a.)

Total Returns — Before fees 0.4 0.6 2.2 4.4

Benchmark* Return 1.1 2.2 2.5 4.5

Excess Return — Before fees -0.7 -1.6 -0.3 -0.1 * From 01/08/2014 Australian Consumer Price Index. Previously Bloomberg Govt Inflation Linked Bond Index (All Mat) Index


5 Years (p.a.)

Mercer Australian Inflation Plus 0.3 0.0 1.7 3.9

Manager performance QIC underperformed over the quarter as Australian inflation numbers came in under market expectations. The UK referendum led to general risk off sentiment in markets, reducing expectations for a rise in global inflation. Ardea managed to outperform despite difficult market conditions due to its positioning in the nominal and break even yield curves and its interest rate protection strategies.

* Bloomberg Govt Inflation Linked Bond Index (All Mat) which is the benchmark used for this Fund.


Mercer Absolute Return Bonds:Total & Excess Returns (%)

3 Months


5 Years (p.a.)

Total Returns — Before fees & taxes: 0.6 1.7 n/a n/a

Benchmark* Return: 0.6 2.2 n/a n/a

Excess Return — Before fees & taxes: +0.0 -0.6 n/a n/a

Manager performance Kapstream and Insight both outperformed over the June quarter. Kapstream’s outperformance continued to be driven by its above market portfolio yield. Insight’s relative outperformance was driven by a strong return in April, largely due to a short position in UK government bonds offset by an equivalent long Australian bond position. A short duration bias in the Italian and German markets also contributed positively. * Bloomberg Bank Bill Index

Australian Inflation Plus: Proportion of assets managed at quarter end (Mercer Growth)

Manager %

Ardea 36.8

Challenger 26.2

QIC 37.0

Absolute Return Bonds :Proportion of assets managed at quarter end (Mercer Growth)

Manager %^

Kapstream 33.3

Insight 33.4

Pioneer 33.3

24



FIXED INTEREST



5 Years (p.a.)

AXA IM +0.1 +1.0 n/a n/a Colonial First State +0.6 -0.7 +0.8 +1.0 Wellington -0.4 -0.2 +0.4 +0.5

GLOBAL CREDIT Credit markets benefitted from the general rally in duration over the quarter.

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

MERCER GLOBAL CREDIT FUND



3 Months

1 Year 3 Years




Excess Return — Before fees : +0.1 0.0 +0.6 +0.8

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


Manager performance

CFS outperformed over the quarter as the Fund shifted its exposure with CFS to an investment grade credit only mandate. The shift was rewarded as credit spreads widened over the quarter. Wellington outperformed the benchmark over the quarter as stock selection in investment grade industrials names contributed positively, in particular within energy and non-cyclical consumer sectors.

* 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 Fund. Alternate benchmarks may apply to managers individually.


Manager % AXA IM 31.5 Colonial First State 35.2 Wellington 33.3

25



FIXED INTEREST

EMERGING MARKETS DEBT

Emerging versus Developed Yields

MERCER EMERGING MARKETS DEBT FUND



3 Months

1 Year 3 Years


Total Returns — Before fees : 9.0 5.5 2.5 n/a

Benchmark* Return : 6.1 5.3 3.3 n/a

Excess Return — Before fees : +2.9 +0.2 -0.8 n/a

* JP Morgan GBI-EM Global Diversified Index

Total Returns — After fees : 8.9 4.9 1.8 n/a

Manager performance

All managers outperformed over the June quarter. One of the underlying managers, BlackRock, was the most positive contributor to relative performance largely due to the managers short FX positioning in low yielding currencies. Security selection and currency positioning contributed to Wellington’s outperformance while Investec benefitted from its underweight exposure to Malaysian and South Korean currency.


Manager %

Mercer (Dublin) Emerging Markets Debt Fund 100.0

26


NOTE: Past performance is not a reliable indicator of future performance. Refer to page 39- ‘Important notes about this Report’ - for further information on the calculation of returns

CASH



5 Years (p.a.)

Challenger +0.1 +0.4 +0.5 +0.6 Blackrock 0.0 +0.1 n/a n/a

CASH & TERM DEPOSITS Currency markets developed over the quarter as the RBA reacted to lower inflation figures, cutting the cash rate to 1.75%.

Mercer Term Deposits – Breakdown by provider 0.7

36.2

15.85.9

26.1

1.34.0

6.3

ANZ

Westpac

CBA

ME

NAB

ING

Bendigo

Suncorp

Term Deposit – Maturity buckets at 30 June 2016 (%)

0 to 90 days 26.8

91 to 180 days 27.9

181 to 270 days 20.1

271 to 365 days 25.3

Mercer Cash – Term Deposit Units

Average maturity (months) 6.1

Average yield 2.6

MERCER CASH FUND


Mercer Cash Fund – Cash Units Total & Excess Returns (%) 3 Months 1 Year 3 Years

(p.a.) 5 Years

(p.a.) Total Returns — Before fees: 0.6 2.5 2.8 3.4


Excess Return — Before fees 0.0 +0.3 +0.3 +0.3

Mercer Cash Fund – Term Deposit Units Total & Excess Returns (%) 3 Months 1 Year 3 Years

(p.a.) 5 Years

(p.a.)



Excess Return — Before fees 0.0 +0.4 +0.5 +0.6

* Bloomberg bank Bill Index


5 Years (p.a.)

Mercer Cash Fund – Cash Units 0.5 2.1 2.5 3.1 Mercer Cash Fund – Term Deposit Units 0.6 2.3 2.7 3.4

Manager performance

Challenger term deposits outperformed the benchmark over the quarter while BlackRock performed inline.

* Bloomberg Bank Bill Index, which is the benchmark used for the Fund.


Manager % Challenger 49.6 Blackrock 50.4

27



OTHER SECTOR FUNDS

MERCER DIVERSIFIED SHARES FUND Objectives

To achieve a return (before management costs) that exceeds CPI increases by at least 4.5% per annum over rolling ten year periods. This objective for the ten years to quarter end was 6.9% per annum.

* Composite benchmark of relevant indices

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

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

Growth Total Shares

Australian Equities - Large Cap 42.0 38.5 38.5

Australian Equities - Small Cap 5.0 5.0 5.0

Global Equities - Large Cap 31.0 35.6 35.6

Global Equities - Low Vol 10.0 8.2 8.2

Global Equities - Small Cap 7.0 6.9 6.9

Emerging Markets Equity 5.0 5.6 5.6

Cash 0.0 0.0 0.3

100.0 100.0 100.0 ** Refer to page 40 for more information on manager line up for this asset class

Total & Excess Returns - Before fees (%)

3 Months

1 Year

3 Yrs (p.a.)

10 Yrs^ (p.a.)

Total Returns: 3.7 0.4 11.0 5.2

Benchmark Return* 3.8 0.4 10.5 5.3

Excess Returns: -0.1 0.0 +0.5 -0.1

Total Returns – After fees (%)

3 Months 1 Year 3 Yrs

(p.a.) 10 Yrs^

(p.a.)

Total Returns: 3.5 -0.6 9.5 3.8

Performance attribution this quarter (%)

Asset Allocation 0.2

Stock/manager selection -0.3

Excess Return for quarter – Before fees : -0.1

28

MERCER MULTI-MANAGER FUNDS QUARTERLY REPORT NOTE: Past performance is not a reliable indicator of future performance. Refer to page 39 - ‘Important notes about this Report’ - for further information on the calculation of returns

DIVERSIFIED FUNDS – MULTI SECTOR GROWTH

MERCER GROWTH FUND Objectives

To achieve a return (before management costs) that exceeds CPI increases by at least 4% per annum over rolling five year periods. This objective for the five years to quarter end was 5.9% 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



Growth Defensive Total Shares

Australian Equities - Large Cap 24.0 22.1 0.0 22.1

Australian Equities - Small Cap 3.0 3.0 0.0 3.0

Global Equities - Large Cap 16.0 20.4 0.0 20.4

Global Equities - Low Vol 6.0 4.1 0.0 4.1

Global Equities - Small Cap 3.0 2.8 0.0 2.8

Emerging Markets Equity 3.0 3.3 0.0 3.3

Property &

Infrastructure

Listed Property 2.0 1.0 0.0 1.0

Unlisted Property 4.5 5.6 0.0 5.6

Listed Infrastructure 2.0 1.0 0.0 1.0

Unlisted Infrastructure 4.5 3.2 0.0 3.2

Alternatives

Natural Resources 1.3 1.5 0.0 1.5

Private Equity 0.0 0.0 0.0 0.0

Sustainable Opps 0.0 0.0 0.0 0.0

Diversified Growth Funds 2.4 1.0 1.0 2.0

Hedge Funds 2.4 1.5 1.5 3.1

High Y

ield Fixed

Interest

Private Debt 2.0 0.0 1.2 1.2

High Yield/Multi Asset Credit 2.0 0.0 2.6 2.6

Emerging Markets Debt 1.0 0.0 0.0 0.0

Defensive Fixed

Interest& Cash

Absolute Return Bonds 2.0 0.0 3.0 3.0

Global Credit 3.0 0.0 2.9 2.9

Australian Sovereigns 5.0 0.0 4.8 4.8

Global Sovereigns 3.0 0.0 1.0 1.0

Inflation Plus 4.0 0.0 4.2 4.2

Cash 4.0 0.0 7.3 7.3

100.0 70.5 29.5 100.0 ** Refer to page 40 for more information on manager line up for this asset class

MERCER SELECT GROWTH FUND Objectives

To achieve a return (before management costs) that exceeds CPI increases by at least 4.25% per annum over rolling six year periods. This objective for the six years to quarter end was 6.4% per annum.












Property &

Infrastructure





Alternatives





Hedge Funds 2.0 1.5 1.5 2.9

High Y

ield Fixed

Interest

Private Debt 2.0 0.0 0.8 0.8



Defensive Fixed

Interest & C

ash






Cash 3.0 0.0 8.5 8.5



3 Months

1 Year

3 Yrs (p.a.)

5 Yrs^ (p.a.)

Total Returns: 3.0 3.1 9.3 9.0


Excess Returns: -0.2 -0.4 +0.7 +0.5



(p.a.) 5 Yrs^ (p.a.)







3 Months

1 Year

3 Yrs (p.a.)

6 Yrs^ (p.a.)

Total Returns: 3.3 3.3 9.0 n/a

Benchmark Return* 3.4 2.9 7.9 n/a Excess Returns: -0.1 +0.4 +1.1 n/a


3 Months 1 Year

3 Yrs (p.a.)

6 Yrs^ (p.a.)

Total Returns: 2.9 1.8 7.8 n/a


Asset Allocation -0.1

Stock/manager selection 0.0


29




MERCER HIGH GROWTH FUND Objectives

To achieve a return (before management costs) that exceeds CPI increases by at least 4.5% per annum over rolling seven year periods. This objective for the seven years to quarter end was 6.8% per annum.












Property &

Infrastructure





Alternatives





Hedge Funds 1.6 1.1 1.1 2.2

High Y

ield Fixed

Interest Private Debt 2.0 0.0 1.2 1.2



Defensive Fixed

Interest & C

ash






Cash 2.0 0.0 3.8 3.8



3 Months

1 Year

3 Yrs (p.a.)

7 Yrs^ (p.a.)

Total Returns: 3.4 2.4 9.4 10.0


Excess Returns: -0.2 -0.3 +0.2 -0.1



(p.a.) 7 Yrs^ (p.a.)






30


DIVERSIFIED FUNDS – MULTI SECTOR INCOME & DEFENSIVE

MERCER INCOME PLUS FUND Objectives

To achieve a portfolio yield (before management costs) of 1.5% to 3.5% per annum above the benchmark over rolling five year periods.

* Bloomberg Bank Bill Index

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









Property &

Infrastructure





Alternatives





Hedge Funds 0.0 0.0 0.0 0.0

High Y

ield Fixed

Interest

Private Debt 7.0 0.0 5.9 5.9



Defensive Fixed

Interest & C

ash





Inflation Plus 10.0 0.0 10.2 10.2

Cash 4.0 0.0 6.2 6.2 100.0 31.4 68.6 100.0

Note: The Income Plus Fund has a different underlying investment manager configuration to the other Mercer Multi-Manager Funds. There is no corresponding core Fund for the Mercer Income Plus Fund.

MERCER MODERATE GROWTH FUND Objectives

To achieve a return (before management costs) that exceeds CPI increases by at least 3.0% per annum over rolling four year periods. This objective for the four years to quarter end was 5.1% per annum.












Property &

Infrastructure





Alternatives





Hedge Funds 1.8 1.2 1.2 2.5

High Y

ield Fixed

Interest

Private Debt 2.0 0.0 1.2 1.2



Defensive Fixed

Interest & C

ash






Cash 10.0 0.0 11.8 11.8

100.0 52.8 47.2 100.0

** Refer to page 40 for more information on manager line up for this asset class


3 Months

1 Year

3 Yrs (p.a.)

5 Yrs^ (p.a.)



Excess Returns: +2.4 +4.3 +5.4 +5.3



(p.a.) 5 Yrs^ (p.a.)





Excess Return for quarter – Before fees : +2.4


3 Months

1 Year

3 Yrs (p.a.)

4 Yrs^ (p.a.)



Excess Returns: -0.1 -0.7 +0.6 +0.8



(p.a.) 4 Yrs^ (p.a.)






31




MERCER CONSERVATIVE GROWTH FUND Objectives

To achieve a return (before management costs) that exceeds CPI increases by at least 2% per annum over rolling three year periods. This objective for the three years to quarter end was 4.0% per annum.












Property &

Infrastructure





Alternatives





Hedge Funds 1.5 1.1 1.1 2.3

High Y

ield Fixed

Interest

Private Debt 2.0 0.0 1.2 1.2



Defensive Fixed

Interest & C

ash





Inflation Plus 10.0 0.0 10.2 10.2

Cash 20.0 0.0 21.4 21.4

100.0 33.8 66.2 100.0


MERCER DEFENSIVE FUND Objectives

To achieve a return (before management costs) that exceeds CPI increases by at least 1% per annum over rolling two year periods. This objective for the two years to quarter end was 2.5% per annum.












Property &

Infrastructure





Alternatives





Hedge Funds 0.0 0.0 0.0 0.0

High Y

ield Fixed

Interest

Private Debt 0.0 0.0 0.0 0.0



Defensive Fixed

Interest & C

ash





Inflation Plus 10.0 0.0 10.2 10.2

Cash 40.0 0.0 39.4 39.4

100.0 16.1 83.9 100.0



3 Months

1 Year

3 Yrs^ (p.a.)

5 Yrs (p.a.)



Excess Returns: 0.0 -0.6 +0.5 +0.4


3 Months 1 Year 3 Yrs^

(p.a.) 5 Yrs (p.a.)





Excess Return for quarter – Before fees : 0.0


3 Months

1 Year

2 Yrs^ (p.a.)

3 Yrs (p.a.)



Excess Returns: +0.1 +0.5 +0.9 +0.8


3 Months 1 Year 2 Yrs^

(p.a.) 3 Yrs (p.a.)





Excess Return for quarter – Before fees : +0.1

32


MERCER SMARTPATH® FUNDS

MERCER SMARTPATH 1989-1993 Objectives

To achieve a return (before tax and management costs) that exceeds CPI increases by at least 4.5% per annum over rolling seven year periods.


Asset Allocation (%) B’mark Actual

Shares

Australian Equities - Large Cap 31.0 29.6

Australian Equities - Small Cap 4.0 4.0

Global Equities - Large Cap 19.0 23.3

Global Equities - Low Vol 7.0 5.0

Global Equities - Small Cap 5.0 5.1

Emerging Markets Equity 4.0 4.5

Property &

Infrastructure

Listed Property 1.5 0.5

Unlisted Property 4.5 5.9

Listed Infrastructure 1.5 0.5

Unlisted Infrastructure 4.5 3.3

Alternatives

Natural Resources 1.5 2.0

Private Equity 0.0 0.0

Sustainable Opps 0.3 0.0

Diversified Growth Funds 1.1 1.0

Hedge Funds 1.1 1.4 H

igh Yield

Fixed Interest

Private Debt 2.0 1.2

High Yield/Multi Asset Credit 2.0 2.5

Emerging Markets Debt 2.0 1.0

Defensive Fixed

Interest & C

ash

Absolute Return Bonds 0.0 1.0

Global Credit 0.0 0.0

Australian Sovereigns 3.0 2.9

Global Sovereigns 3.0 0.4

Inflation Plus 0.0 0.5

Cash 2.0 4.4

100.0 100.0 ** Refer to page 40 for more information on manager line up for this asset class





Shares







Property &

Infrastructure





Alternatives





Hedge Funds 1.1 1.3

High Y

ield Fixed

Interest




Defensive Fixed

Interest & C

ash






Cash 2.0 4.9



3 Months

1 Year

3 Yrs (p.a.)

Total Returns: 3.4 1.6 n/a

Benchmark Return* 3.7 1.7 n/a

Excess Returns: -0.3 -0.1 n/a

Total Returns – After fees & taxes (%) 3 Months 1 Year 3 Yrs^

(p.a.)



3 Months

1 Year

3 Yrs (p.a)




Total Returns – After fees & taxes (%) 3 Months 1 Year 3 Yrs^

(p.a.)


33



MERCER SMARTPATH FUNDS


To achieve a return (before tax and management costs that exceeds CPI increases by at least 4.5% per annum over rolling seven year periods.



Shares







Property &

Infrastructure





Alternatives






igh Yield

Fixed Interest




Defensive Fixed

Interest & cC

sh






Cash 2.0 5.2






Shares







Property &

Infrastructure





Alternatives





Hedge Funds 1.1 1.4

High Y

ield Fixed

Interest




Defensive Fixed

Interest & C

ash






Cash 2.0 4.9



3 Months

1 Year

3 Yrs (p.a.)




Total Returns – After fees & taxes (%)


(p.a.)



3 Months

1 Year

3 Yrs (p.a.)



Excess Returns: -0.3 0.0 n/a



(p.a.)


34







Shares







Property &

Infrastructure





Alternatives






igh Yield

Fixed Interest




Defensive Fixed

Interest & C

ash






Cash 2.0 4.9






Shares







Property &

Infrastructure





Alternatives





Hedge Funds 1.4 1.5

High Y

ield Fixed

Interest




Defensive Fixed Interest C

ash






Cash 2.4 4.8

100.0 100.0



3 Months

1 Year

3 Yrs (p.a.)






(p.a.)



3 Months

1 Year

3 Yrs (p.a.)






(p.a.)


35





To achieve a return (before tax and management costs) that exceeds CPI increases by at least 3.75% per annum over rolling six year periods.



Shares







Property &

Infrastructure





Alternatives






igh Yield

Fixed Interest




Defensive Fixed

Interest & C

ash






Cash 3.8 6.1



To achieve a return (before tax and management costs) that exceeds CPI increases by at least 3.25% per annum over rolling five year periods.



Shares







Property &

Infrastructure





Alternatives





Hedge Funds 1.8 2.0

High Y

ield Fixed

Interest




Defensive Fixed

Interest & C

ash






Cash 5.8 7.9



3 Months

1 Year

3 Yrs (p.a.)






(p.a.)



3 Months

1 Year

3 Yrs (p.a.)






(p.a.)


36




To achieve a return (before tax and management costs) that exceeds CPI increases by at least 2.75% per annum over rolling four year periods.



Shares







Property &

Infrastructure





Alternatives






igh Yield

Fixed Interest




Defensive Fixed

Interest & C

ash






Cash 8.2 11.2



To achieve a return (before tax and management costs) that exceeds CPI increases by at least 2.5% per annum over rolling four year periods.



Shares







Property &

Infrastructure





Alternatives





Hedge Funds 1.8 2.0

High Y

ield Fixed

Interest




Defensive Fixed

Interest & C

ash






Cash 10.0 12.1



3 Months

1 Year

3 Yrs (p.a.)






(p.a.)



3 Months

1 Year

3 Yrs (p.a.)






(p.a.)


37





5 Years (p.a.)

Macquarie +0.2 +0.1 -0.1 -0.5

‘CLOSED’ FUNDS The Funds on this and the following page were closed to new investors during the second quarter of 2010. They remain open to new investments by existing investors only.

MERCER AUSTRALIAN LISTED PROPERTY FUND



3 Months

1 Year 3 Years

(p.a.) 5 Years

(p.a.) Total Returns — Before fees : 9.4 24.7 18.4 17.6


Excess Return — Before fees : +0.2 +0.1 -0.1 -0.5

*S&P/ASX 200 Property Trusts Accumulation Index


Manager performance

*S&P/ASX 200 Property Trusts Accumulation Index

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

Macquarie 100.0

38


IMPORTANT NOTES ABOUT THIS REPORT

Throughout this report, please note that:

Past performance is not a reliable indicator of future performance.

Only Mercer Multi-Manager Funds (MMFs) that were invested in at the end of the quarter are reported on.

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

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

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

The benchmark used for each Fund is noted in the summary of its before-fees performance. As noted, for certain Funds (i.e. those invested in multiple sectors) a composite of the relevant benchmarks applies.

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

− Mercer Diversified Shares Fund

− Mercer Growth & Mercer Select Growth

− Mercer High Growth Fund

− Mercer Moderate Growth Fund

− Mercer Conservative Growth Fund

− Mercer Defensive Fund

− (Closed) Mercer Fixed Interest Fund

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, the 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) may be provisional depending on information available at the time of publication and may be subject to adjustment.

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

The underlying investment manager line ups of the diversified multi-sector Funds and the closed Mercer Property Fund also include managers who have ‘passive’ mandates in respect of listed property and listed infrastructure as shown below. These managers are only relevant to the diversified multi-sector Funds (and the closed Mercer Property Fund in respect of listed property).



5 Years (p.a.)

Listed Property Macquarie -0.1 -0.4 -0.3 n/a Listed Infrastructure Macquarie Investment

-0.1 -0.1 -0.2 -0.3

Returns throughout this report may be subject to rounding error.

39

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Investors should be aware that the value of an investment in any MMF 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 any MMF. If you are investing directly into any MMF, you will need to complete an application form included in, or accompanying, a current Mercer Multi-Manager Funds Product Disclosure Statement which is issued by and available from MIAL. If you are investing indirectly into an MMF through an Investor Directed Portfolio Service (IDPS) or an IDPS-like service (such as a master trust, wrap account, custody or nominees service) (Service) you will need to complete the forms or documents your Service provider requires. The information contained in this Report is of a general nature only and does not take into account the personal objectives, financial situation or needs of individual investors. It is important that you consider these matters, read the: (a) current MMF Product Disclosure Statement if you are investing directly; or (b) current Product Disclosure Statement for any MMF issued by MIAL, together with the Product Disclosure Statement and/or any other offer documents applicable to your Service (available from your Service provider) if you are investing indirectly into an MMF through a Service, and obtain personal financial advice from a licensed, or appropriately, authorised financial adviser. The investment returns shown for any MMF throughout this Report do not take into account the unique characteristics that apply 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 investment returns shown in this Report. You should also remember that past performance should not be relied upon as an indicator of future performance. Copyright 2016 Mercer LLC. All rights reserved. Report Finalised: 5 August 2016

FOR FURTHER INFORMATION

General enquiries

t: 1300 728 928

e: [email protected] www.mercer.com.au

http://www.mercer.com.au/referencecontent.htm?idContent=1451775

MERCER MULTI-MANAGER FUNDS QUARTERLY REPORT · 2020-02-29 · MERCER MULTI-MANAGER FUNDS QUARTERLY...

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