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

How Mercer builds the funds

The Mercer Funds are constructed using our investment beliefs.

When designing and managing the funds, we have a process that encompasses the following as relevant to the specific Fund:

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


Investment Strategy and Objectives

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

We build Diversified Funds to be robust and diversified across a broad range of asset classes. We use sophisticated modelling to ensure that the overall portfolio has a reasonable chance of meeting its objective and monitor current and forward looking market conditions to inform portfolio positioning.

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 investment managers. 

There is no guarantee that a particular investment 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, as 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. 


Our Australian-based Investment Management Team selects specialist investment managers for each Single Sector Fund, drawing on Mercer’s significant global scale in researching investment managers. Mercer’s global research coverage provides us with access to the best ideas from more than 7,000 investment managers around the world (as at 30 September 2021). Mercer’s investment manager research evaluates each investment manager’s strengths and weaknesses in idea generation, portfolio construction, implementation and business management to determine the rating for each investment strategy. The manager ESG rating is also considered in the manager selection process.

In formulating the preferred structure for our actively managed Single Sector Funds, we aim to ensure access to a diversified range of assets and investment managers, blended in a manner that seeks to optimise ‘value add’ against the stated benchmark in a risk-controlled way. 

The passive funds tend to have a single investment manager, selected based on their ability to efficiently manage a portfolio based on the composition of the relevant index. 

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 from the Investment Manager List available under the Fund Facts tab - Documents.

Dynamic Asset Allocation

For some Mercer Diversified Funds, we may make medium-term asset allocation changes in response to changing market conditions to add value and/or mitigate risk in investor’s portfolios. A dynamic approach to asset allocation helps to navigate the cyclical ups and downs of markets. It may also improve investor returns by taking advantage of short-term opportunities and avoiding heightened areas of risk.

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.