MONTHLY REPORT MERCER COMMENTARY

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Henry Lang
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1 MONTHLY REPORT MERCER COMMENTARY March started on a positive note, bouncing back from losses in February. Volatility (markets going up and down) returned in the latter half of March, however, as the market grappled with the implications of trade tariffs announced by the US and China, including fears of lower corporate profits and slowing economic growth. Not surprisingly share markets reacted negatively to the news, falling for the second consecutive month. Traditional safe haven assets like bonds and property rallied as a result, even despite the US Federal Reserve implementing its first interest rate hike of 2018 on 21 March. Shares across all major markets saw red in March, with large developed market stocks leading the falls. Returns on the New Zealand share market (NZX50) were looking positive until the final week of March, when global weakness, and a move by Nestlé threatening a2 milk s growth prospects in the infant formula market, dragged returns into negative territory (closing the month down -0.3%). Australian shares underperformed global markets as Materials and Financials (both heavily represented in the Australian market) fell sharply late in the month. Global share markets were unnerved this month at US President Donald Trump s announcement of tariffs affecting about 10% of Chinese exports to the US. A Trump twitter attack on Amazon, accusing the online retail giant of tax avoidance, also led to a sell-off in large technology stocks late in the month. As a result, the Materials, Technology and Financials sectors suffered the biggest losses over the month. Utilities, Real Estate and Energy were the only listed equity sectors to deliver positive returns over the month, rebounding from heavy falls in February, and contributed to positive returns from Global Listed Property (+2.4%) and Global Listed Infrastructure (+0.8%). These more defensive sectors benefitted from the more bearish (negative) market sentiment that emerged during the month.

2 SIGNIFICANT RECENT ITEMS INCLUDE: RUSSIA UNITED STATES CHINA NEW ZEALAND US NEW ZEALAND CHINA RUSSIA As widely expected, the US Federal Reserve raised its benchmark interest rate to 1.75%; in line with New Zealand s Official Cash Rate. US President Donald Trump announced tariffs on steel (25%) and aluminium (10%), plus additional tariffs which will affect US$50bn of Chinese exports, whilst also blocking Chinese takeovers of US companies and seeking restrictions on future Chinese investment in the US. New Zealand Finance Minister Grant Robertson and Reserve Bank Governor Adrian Orr signed a new Policy Targets Agreement (PTA) setting out specific targets for maintaining price stability and a new requirement to consider employment outcomes in the conduct of monetary policy. Retaliations to the tariffs have varied, with exemptions extended to a number of US allies as a result. China has responded by imposing tariffs affecting a similar level of US exports and announcing it could slow its purchase of US Treasury bonds. The posturing could lead to more productive trade negotiations between the countries, or else risk sparking a trade war between the world s two biggest economies. Vladimir Putin has been re-elected President of Russia. At the same time accusations of Russia-sanctioned assassinations on British soil led much of the world to rally behind Britain and collectively send over 100 Russian diplomats back to Russia.

3 INVESTMENT RETURNS MERCER KIWISAVER SCHEME 28% PRESCRIBED Cash 0.11% 1.47% 2.00% Conservative -0.01% 3.83% 4.72% Moderate -0.19% 4.78% na Balanced -0.49% 6.51% 7.31% Growth -0.86% 8.00% na High Growth -1.22% 9.55% 9.99% Shares -1.80% 11.22% na 17.5% PRESCRIBED Cash 0.12% 1.67% 2.33% Conservative 0.04% 4.16% 5.29% Moderate -0.13% 5.17% na Balanced -0.43% 6.95% 7.95% Growth -0.79% 8.46% na High Growth -1.15% 10.06% 10.65% Shares -1.74% 11.68% na 10.5% PRESCRIBED Cash 0.14% 1.81% 2.53% Conservative 0.08% 4.34% 5.61% Moderate -0.09% 5.42% na Balanced -0.39% 7.25% 8.27% Growth -0.79% 8.76% na High Growth -1.11% 10.41% 10.92% Shares -1.78% 11.86% na Notes The investment returns shown on this page are based on the unit price movements of each investment portfolio and are net of tax at the rate indicated and net of fund charges that are charged within the unit prices. Each investor s returns within an investment portfolio will depend on timing of contribution payments and actual fees charged allowing for any fee rebates. The net returns shown are therefore indicative of investment results but may differ from the actual net of fees and tax returns achieved by individual investors. na indicates that investment option was not operating for the full period or did not have funds invested for the full period.

4 INVESTMENT RETURNS MERCER SUPER TRUST 28% PRESCRIBED Cash 0.08% 1.08% 1.67% Conservative -0.04% 3.37% 4.45% Moderate -0.21% 4.51% 6.05% Balanced -0.52% 6.18% 7.29% Growth -0.88% 7.77% 8.61% High Growth -1.24% 9.26% 10.06% Shares -1.82% 11.07% 12.27% 17.5% PRESCRIBED Cash 0.09% 1.24% 1.88% Conservative 0.00% 3.69% 4.89% Moderate -0.16% 4.86% 6.51% Balanced -0.45% 6.57% 7.75% Growth -0.83% 8.26% 9.11% High Growth -1.18% 9.70% 10.43% Shares -1.83% 11.43% 12.64% 10.5% PRESCRIBED Cash 0.10% 1.35% 2.01% Conservative 0.05% 3.86% 5.16% Moderate -0.13% 5.02% 6.73% Balanced -0.42% 6.78% 8.03% Growth -0.79% 8.33% 9.35% High Growth -1.12% 9.97% 10.74% Shares -1.74% 11.79% 12.88% Notes The investment returns shown on this page are based on the unit price movements of each investment portfolio and are net of tax at the rate indicated, net of investment management fees and net of any administration fees that are charged within the unit prices. Administration charges can vary between plans in Mercer Super Trust and portions of such fees may be rebated through the granting of extra units to investors. Each investor s returns within an investment portfolio will depend on timing of contribution payments and actual fees charged allowing for any fee rebates. The net returns shown are therefore indicative of investment results but may differ from the actual net of fees and tax returns achieved by individual investors. na indicates that investment option was not operating for the full period or did not have funds invested for the full period. Fees may be deducted by redeeming units.

5 INVESTMENT RETURNS MERCER FLEXISAVER MERCER-MANAGED INVESTMENT OPTIONS 1 MONTH 1 YEAR 2 YEARS 28% PRESCRIBED Cash 0.08% 1.09% 1.14% Conservative -0.03% 3.14% 3.25% Moderate -0.21% 4.38% 4.53% Balanced -0.52% 5.93% 6.27% Growth -0.87% 7.77% 8.47% High Growth -1.20% 9.01% 9.82% Shares -1.78% 10.81% 11.33% MERCER-MANAGED INVESTMENT OPTIONS 1 MONTH 1 YEAR 2 YEARS 17.5% PRESCRIBED Cash 0.11% 1.46% 1.52% Conservative 0.02% 3.66% 3.56% Moderate -0.14% 4.85% 4.86% Balanced -0.44% 6.63% 7.02% Growth -0.80% 8.16% 9.00% High Growth -1.15% 9.53% 10.26% Shares -1.77% 11.36% 11.79% MERCER-MANAGED INVESTMENT OPTIONS 1 MONTH 1 YEAR 2 YEARS 10.5% PRESCRIBED Cash 0.10% 1.41% 1.43% Conservative 0.05% 3.83% 3.91% Moderate -0.12% 5.03% 4.98% Balanced -0.42% 6.76% 7.24% Growth -0.75% 8.57% 9.33% High Growth -1.13% 9.99% 10.70% Shares -1.76% 11.64% 12.25% Notes The investment returns shown on this page are based on the unit price movements of each investment portfolio and are net of tax at the rate indicated, net of investment management fees and net of any administration fees that are charged within the unit prices. Certain fund charges can vary between investors in Mercer FlexiSaver and portions of such fees may be rebated through the granting of extra units to investors. Each investor s returns within an investment portfolio will depend on timing of contribution payments and actual fees charged allowing for any fee rebates. The net returns shown are therefore indicative of investment results but may differ from the actual net of fees and tax returns achieved by individual investors. na indicates that investment option was not operating for the full period or did not have funds invested for the full period.

6 FINANCIAL MARKETS ONE MONTH ONE YEAR KEY NZ SHARES OVERSEAS SHARES (LOCAL CURRENCY) OVERSEAS SHARES (UNHEDGED) GLOBAL PROPERTY (HEDGED) S&P/NZX 50 (with ICs) MSCI World (Local Currency) MSCI World (Unhedged) FTSE EPRA NAREIT Developed 16.9% GLOBAL INFRASTRUCTURE (HEDGED) FTSE Global Core Infrastructure 50/50 9.9% 10.1% NZ FIXED INTEREST NZ CASH OVERSEAS FIXED INTEREST (HEDGED) S&P/NZX NZ Government Bond S&P/NZX 90 Day Bank Bills Bloomberg Global Agg This document has been prepared and published by Mercer (N.Z.) Limited (Mercer). The document has been published as a general information service and does not take account of the investment objectives, financial situation and/or particular needs of any person. Before making any investment decision, you should consider, with or without the assistance of an adviser, whether the information is appropriate in light of your particular investment needs, objectives and financial circumstances. Neither Mercer or any related party accepts any responsibility for any inaccuracy. Past performance is no guarantee or indicator of future performance. Mercer (N.Z.) Limited New Zealand Shares -0.3% -2.3% -2.1% Global Property (Hedged) Overseas Shares (Unhedged) Overseas Shares (Local Currency) 2.4% 0.8% 0.9% New Zealand Fixed Interest Global Infrastructure (Hedged) 0.2% 0.9% New Zealand Cash Overseas Fixed Interest (Hedged) New Zealand Shares Global Property (Hedged) Overseas Shares (Unhedged) Overseas Shares (Local Currency) 1.5% 2.7% 4.6% New Zealand Fixed Interest Global Infrastructure (Hedged) 2.0% New Zealand Cash Overseas Fixed Interest (Hedged) 3.2% B2C - Mercer NZ - Monthly Report - MARCH 2018

MONTHLY REPORT MERCER COMMENTARY

MONTHLY REPORT MERCER COMMENTARY April saw share markets bounce back from their recent decline, delivering positive returns across all developed economies such as Australia, UK, the US and others. Market