Setting the Strategic Direction: Mercer Research Agenda
1. #mgif
SETTING THE STRATEGIC DIRECTION
RESEARCH THEMES FOR 2014
Deb Clarke Shaum Shrinivas
London St. Louis
June 11, 2014
2. What Do Our Clients Want?
DB
• Risk liabilities?
E&F
• Niche / Emerging strategies
and managers
• Appropriate vehicles?
DC
• Outcome based investing?
• Growth vs security?
Wealth Management
• What is tactical?
• What is in vogue?
Mercer
Investments
3. What Do Our Clients Want?
How do we meet these needs with regards to strategic
and manager research?
4. What Do Our Clients Want?
Mercer
Investments
• Developed a solution
• HVR screening tool
• Research broader range
• Sector strategies
• Increased trend towards
researching balanced
funds or DGF’s
• Communication and
clarity of message
• Prepared to back strategies
early in their life
• Identify specific niche areas
• Recognise new ways of investing
• New FI strategies and recognition
of broader equity factor exposures
to include quality and low vol.
• All help to develop a better
risk/return profile
DB
• Risk liabilities?
E&F
• Niche / Emerging strategies
and managers
• Appropriate vehicles?
DC
• Outcome based investing?
• Growth vs security?
Wealth Management
• What is tactical?
• What is in vogue?
vv
5. What Do Our Clients Want?
How do we meet these needs with regards to strategic
and manager research?
Our set of beliefs underlying these is that quality
research underpins good advice to all our clients.
6. Positioning Portfolios For Long-term Success
Time Horizon Topics
Short Term (1 to 3 years) DAA dashboard
Emerging Markets Equity
Growth Fixed Income
Active Management
Longer Term (3 + years)
Blue Sky Thinking
Be More Dynamic
Multiple Return Drivers
Robust Equity Portfolios
Better Bond Portfolios
Sustainable Investment
7. A Global Approach To Idea Generation
Global Policy Committee
European
Strategic
Research
Manager
Research
US Strategic
Research
Growth Markets
Strategic
Research
Canadian
Strategic
Research
Delegated
Solutions
Pacific Strategic
Research
Portfolio
Construction
Global Strategic Research Committee
Client Segment
Research Group
DC
DB
Insurance
E&F
WM
Multi- Asset Class
Research Group
Manager Research
Global Capital Markets
Portfolio Construction
Research
DAA
ESG
Delegated Solutions
Single Asset Class
Research Group
Bonds
Equity
Real Estate
Alternatives
ESG
Global Investment Research
Responsible Investments
Fixed IncomeEquity
Real EstateAlternatives
8. Implementing Themes – Global
GLOBAL EQUITY
151 searches
HEDGE FUNDS
72 searches
GLOBAL CREDIT
56 searches
HEDGE FUNDS
113 searches
EM EQUITY
49 searches
EM DEBT
45 searches
REAL ESTATE
55 searches
EM EQUITY
57 searches
REAL RETURN FUNDS
27 searches
PRIVATE EQUITY
23 searches
REAL RETURN FUNDS
34 searches
INFRASTRUCTURE
28 searches
REAL ESTATE
46 searches
GROWTH FIXED INCOME
51 searches
INFRASTRUCTURE
39 searches
REAL RETURN FUNDS
46 searches
2009 2010 2011 2012 2013
Client added
£50m
to Corporate
Bonds
Client redeems their
Corporate Bonds
following good
returns achieving a
profit of £30m over
3 years
9. Implementing Themes – United States
International Equity
(Global & EAFE)
22 searches
US Equity
38 searches
Hedge Funds
10 searches
EM Equity
10 searches
Hedge Funds
10 searches
Real Estate
9 searches
EM EQUITY
35 searches
EM Debt
5 searches
US High Yield
6 searches
Hedge Funds
11 searches
Targeted Volatility
5 searches
US Large Cap Equity
57 searches
International Multi-Asset
(including Diversified Inflation)
16 searches
Bank Leveraged Loans
6 searches
Private Equity
7 searches
Hedge Funds
12 searches
2009 2010 2011 2012 2013
Client
implemented
$750m across a
broad Real
Estate Portfolio
Client‘s portfolio
value increased
by 41% over 3
years
10. What Are We Seeing In 2014?
• Seeking to diversify beyond stocks and bonds
• Emerging markets: opportunity or risk?
• Long term potential impact of QE ending
• Willingness to accept illiquidity
14. Be More Dynamic
Governance Structures Important
In-house
• Broad policy ranges
• Tilts with equities or
fixed income
• Implementation
considerations
• Monitoring
Delegated
• Manager strategies
with flexibility
• Capture short-lived
liquid opportunities
• Clear guidelines and
robust monitoring
15. Equity Risk
Premium
Small Cap
Premium
Emerging
Market
Premium
Credit Risk
Premium
Unexpected
Inflation
Term
Premium
Illiquidity
Premium
Non-
Corporate
GDP Growth
Alpha
Developed Large Cap High Moderate
Emerging Markets High High High
Sovereign Bonds High
Investment Grade Credit Moderate High Some
Unlisted Infrastucture Some Some High High High Moderate Moderate
Unlisted Real Estate Moderate High High High
Macro/Managed Futures Some Some High High
Multi Strategy Some Moderate Some Some High
Diversification
across asset classes
Diversification
across risk factors
Multiple Return Drivers
“True” Diversification
16. Multiple Drivers Of Return
“True” Diversification
Equity Risk
Premium
Small Cap
Premium
Emerging
Market
Premium
Credit Risk
Premium
Unexpected
Inflation
Term
Premium
Illiquidity
Premium
Non-
Corporate
GDP Growth
Alpha
Developed Large Cap High Moderate
Emerging Markets High High High
Sovereign Bonds High
Investment Grade Credit Moderate High Some
Unlisted Infrastucture Some Some High High High Moderate Moderate
Unlisted Real Estate Moderate High High High
Macro/Managed Futures Some Some High High
Multi Strategy Some Moderate Some Some High
Alpha
Moderate
High
Moderate
High
High
Illiquidity
Premium
Some
High
High
17. Robust Equity Portfolios
Global Earnings Growth Expected
0%
12.5%
25.0%
37.5%
50.0%
80
100
120
140
160
2012 2013 2014
Total Return Index Realized Earnings Growth
TotalReturnIndex
Base100asatJan2012
EarningsGrowth
MSCI World Index (USD)
Source: Thomson Reuters DataStream, IBES
21. DM Equity
DM Small Cap Equity
Low Vol Equity
EM Equity
Hedge Funds
Global REITs
Core Real Estate
Private Equity
EM Debt
Private Debt
Global High Yield Bonds
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
5.0% 10.0% 15.0% 20.0% 25.0%
Risk (% p.a.)
Return(%p.a.)
Long Term Asset Class Assumptions
Better Bond Portfolios
Within Growth Portfolios
23. Areas of Focus in 2014
Entering the upswing? Charting a course for investment success
Understanding normalization
Multiple return drivers
Effective ownership