How does Mercer build the funds?
How does Mercer build the funds?

How does Mercer build the funds?

The Mercer Funds are constructed using our investment beliefs.

When designing and managing the funds, we have a process that encompasses:

  • Setting the objectives and investment strategy
  • Selecting the managers
  • Dynamic asset allocation
  • Sustainability and ESG considerations

 

Investment Strategy and Objectives

The Funds are created with a specific performance objective, which we aim to consistently achieve over time.

Our approach to investment manager selection allows us to deliver optimal exposure to a range of investment management styles. In formulating the preferred portfolio structure for each actively managed multi-manager Fund, we aim to ensure access to a broad investment opportunity set, use innovative asset classes, and exposure to less efficient markets to maximise the ‘value add’ potential of each Fund. Consideration is also given to both active and passive management and the optimal number of managers. 

Passive funds are invested to ensure the particular sector exposure is consistent with the benchmark index for that sector.

For each Fund, we have determined an investment strategy we believe is reasonably likely to enable the Fund to meet its performance objectives over time. However, there is no guarantee that a particular objective will be met over a particular period.  The investment strategy includes the selection of a long-term mix of investments (asset classes) that support the Fund’s objectives, per the relevant Product Disclosure Statement. The funds are designed to meet the needs of a specific target market, as set out in the Target Market Determination for each Fund. 

Changes may be made to the investment objective(s) and strategy for each Fund, as required, in order to ensure that the objective(s) continue to have a reasonable probability of being attained. The actual asset allocation may fall outside the stated ranges during certain times such as extreme market conditions, asset class transitions or during material transactions.

We monitor each Fund’s performance against objectives, with formal analysis performed each quarter. 

Manager research and selection

Mercer’s significant scale and our extensive global investment manager research provides us with access to the best ideas from more than 6,700 investment managers around the world (as at 30 June 2020).

Mercer’s Australian-based investment management team leverages the global Mercer research network to achieve optimal combinations of specialist managers for each Fund. Mercer’s investment manager research focuses on each manager’s strength in idea generation, portfolio construction, implementation and business management.

Prior to the appointment of an investment manager, a detailed Operational Risk Assessment Report is prepared, considering risks associated with the investment mandate type, firm size, and significant third party or outsourced relationships, along with the mitigating or compensating controls that a firm may have to manage potential issues.

We may remove, replace, or appoint additional investment managers for the Funds at our discretion at any time.

Current investment manager details can be obtained within the Investment Managers Appointed by Mercer document.

 

Dynamic Asset Allocation

For the diversified (multi-asset) funds, we make medium-term asset allocation changes in response to changing market conditions to add value and/or mitigate risk in your portfolio. A dynamic approach to asset allocation helps to negotiate the cyclical ups and downs of markets and smooth your experience. It can also improve your returns by taking advantage of short-term opportunities and avoiding temporary problems.

Sustainability and ESG considerations

Mercer believes a sustainable investment approach is more likely to create and preserve long-term investment capital and, more specifically, that:

  • ESG factors can have a material impact on long-term risk and return outcomes and these should be integrated into the investment process. 
  • Taking a broader and longer-term perspective on risk, including identifying sustainability themes and trends, is likely to lead to improved risk management and new investment opportunities. 
  • Climate change poses a systemic risk, and investors should consider the potential financial impacts of both the associated transition to a low-carbon economy and the physical impacts of different climate outcomes.  
  • Stewardship (or active ownership) supports the realisation of long-term shareholder value by providing investors with an opportunity to enhance the value of companies and markets.

Consequently, Mercer believes that a sustainable investment approach that considers these risks and opportunities is in the best interests of our investors. 

See the Sustainable Investment page for more details on our sustainable investment approach.