MERCER >IS< OVERVIEW NOVEMBER 2012 MERCER

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1 MERCER >IS< OVERVIEW NOVEMBER 2012 MERCER i

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3 CONTENTS 1. INTRODUCTION FUND AND RESEARCH PROFILES MANAGER NEWS AND VIEWS RATINGS AND NEWS ALERT MANAGER MONITORING REPORTS RISK PROFILES & ASSET ALLOCATION MODEL PORTFOLIOS & PORTFOLIO CONSTRUCTION MONTHLY FLAGSHIP REPORT SECTOR UPDATES MERCER >IS< QUANT MERCER >IS< SUPER SUPPORT...16 MERCER i

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5 1. INTRODUCTION Our range of desktop tools for advisers, branded Mercer >IS<, provides a comprehensive suite of online tools covering product research and monitoring, investment market updates, strategic research, portfolio and performance analysis, and super fund product research. The research contained within Mercer >IS< leverages directly off intellectual capital generated by our global institutional research and consulting team. These tools include: Mercer >IS< Research an online comprehensive research tool containing fund and research information on the retail managed fund universe, as well as market commentary and Mercer views. Mercer >IS< can be maintained centrally; so that adviser access can be limited to their relevant APL and model portfolios. This is delivered in real time and can be extended to segmenting advisers by skill level so that they might only see material that is either relevant or permissible to their circumstances. Mercer >IS< Quant an online tool where advisers can compare performance (and risk metrics) of funds and client portfolios. Advisers can directly access their licences model portfolios and client portfolios saved on Mercer >IS< Research for a wide range of performance analysis. Mercer >IS< Super an online super fund comparison tool, designed to ensure advisers are able to efficiently source accurate and adequate information to form a reasonable basis for all forms of super product advice in an efficient manner. Mercer >IS< Super reports summarise key information on investments, insurance, services and fees of more than 200 funds and equip advisers with PDF reports to support their recommendations. MERCER 1

6 SUMMARY OF CONTENT AND FUNCTIONALITY Through Mercer >IS< Research, you will have access to the following research content and functionality (access to all areas can be customised at licence or adviser level): Mercer >IS< content and functionality Risk profiles and asset allocation Manager research Market research Regular communication Downloadable PDF profiles for SOA Description Print Model Portfolio profiles with fund names Search for funds within their Approved List Forward looking research on more that 6,500 APIR listed products Search for funds within the Approved List Manager news and views posted daily Economic indicators and commentary (monthly and quarterly) Forward-looking market analysis across all asset classes prepared by Mercer s DAA Team Monthly newsletter providing market data and commentary, as well as performance survey data Weekly of rating changes on advisers watchlist Fund Profiles on the retail fund universe Research Profiles for rated funds Asset Allocation Profile (licence or client customised) Portfolio Profile (licence or client customised) Super Fund Profile Super Fund Comparison Profile Super Fund fee comparison (word) Strategic research Mercer discussion papers on wide range of portfolio construction issues (monthly) Tools and functionality Asset Allocation modelling functionality provides expected risk/return for licence risk profiles and custom Import/export lists of funds or portfolios to and from excel Download updated performance and ratings of Approved List and saved fund lists in excel Mercer >IS< Quant allows performance analysis on funds and portfolios Mercer >IS< Super comparator compares features and benefits of over 200 super funds MERCER 2

7 2. FUND AND RESEARCH PROFILES The Mercer >IS< website provides the architecture for both financial advisers and Head Office staff to access fund information. Mercer >IS< contains multiple search filters and is Platform, APL, manufacturer, region and rating aware. It includes: Mercer >IS< Fund Profiles (Fact Sheets) contain fund performance, fee, and asset allocation information and the Mercer Star Rating Mercer >IS< Research Profiles can be downloaded for any fund rated by Mercer listed on Mercer >IS< Research, and details our forward-looking research views (using Mercer s four factor rating framework) as well as the fund style, investment process and key people Mercer >IS< Quant Profiles are attached to the back of Research Profiles and provide a quantitative overview of a rated fund including table of returns against benchmark and chart exhibits Sample Fund, Research and Quant profiles for Ausbil Australian Active Equity Fund Core are shown below: MERCER 3

8 3. MANAGER NEWS AND VIEWS Manager news items are posted daily on Mercer >IS< Research along with Mercer view/analysis on the likely impact on our ratings for significant news. Samples of a recent news item and view is shown below: MERCER 4

9 4. RATINGS AND NEWS ALERT Ratings on funds are reviewed as part of an ongoing process and Mercer leads the market in our ability to monitor managers on an ongoing basis. We understand that licensees are exposed to a vast universe of funds across their adviser s client bases and are unable to actively monitor all of these funds on a daily basis. We have therefore created a tool whereby an is automatically generated and sent to both your research team and any nominated advisers alerting them of any rating changes on a predefined set of funds. Advisers will receive regular s summarising rating changes, manager news, and Mercer analyst views added to Mercer >IS< over the past week. Advisers can save watch lists of strategies and client portfolios in Mercer >IS<. An will be sent directly to the adviser notifying them of the downgrade for any funds in saved watchlists or portfolios. A sample is shown below: MERCER 5

10 5. MANAGER MONITORING REPORTS For A-rated funds and funds with client exposure, a quarterly monitoring report is also posted to Mercer >IS<, providing a quarterly evaluation of qualitative and quantitative factors. This includes confirmation by the Mercer researcher of the rating and comments on any significant events over the quarter. Performance against benchmark and objectives is shown as well as active sector, style, and risk portfolio positions. A sample report is shown below: MERCER 6

11 6. RISK PROFILES & ASSET ALLOCATION For adviser use, we maintain five house Risk Profiles through Mercer >IS<. The investment objectives for our current Risk Profiles are shown below. In developing underlying asset allocations for risk Profiles, we have drawn upon Mercer s latest strategic research and proprietary asset allocation modelling tools. Risk Profile Performance objective (average return per annum) Conservative Moderately Conservative Balanced Growth High Growth CPI + 3.0% CPI + 4.0% CPI + 4.5% CPI + 5.0% CPI + 5.5% Minimum timeframe 3 years 5 years 6 years 7 years 8 years Growth allocation 25% 45% 65% 85% 100% Defensive allocation 75% 55% 35% 15% 0% You can also display licence-specific risk profiles, rather than Mercer s risk profiles, in this area and maintain these centrally out of your research team. Advisers can view expected risk and return Profiles, and return distributions, for any tax status and download an Asset Allocation Profile for client disclosure. Mercer >IS< Research can also generate an SAA analysis for an adviser created custom SAA. This is useful for advisers when comparing the expected risk and return of an existing portfolio SAA against the recommended SAA. Expected risk and return can be analysed under a variety of possible tax structures, such as pre-tax, specified marginal tax rate, and superannuation tax rates. Features of the asset allocation analysis includes: Expected risk and returns of any strategic asset allocation using Mercer s long-term capital market assumptions Portfolio comparison to the Efficient Frontier Expected distribution of returns over a single year and compounded over 20 years Graphical representation of results and export to Excel or PDF Risk of loss expressed as negative return every (x) years Tax implications of the asset allocation, such as percentage of income franked. MERCER 7

12 7. MODEL PORTFOLIOS & PORTFOLIO CONSTRUCTION Mercer >IS< sets the benchmark in the provision of support for advisers in building, managing and reporting on portfolios. We have developed Mercer >IS< to allow advisers to be able to efficiently and seamlessly analyse portfolios on an ongoing basis, to accumulate information on that portfolio and have this automatically collated into a document for clients. Advisers can be automatically alerted when any changes to ratings occur to funds within client portfolios (to the extent they store the portfolio on the system). MODEL PORTFOLIO DELIVERY Our Portfolios tab on Mercer >IS< serves as a mechanism to deliver your model portfolio suite. MERCER 8

13 CREATING A BESPOKE CLIENT PORTFOLIO Advisers can also create their own portfolios and undertake analysis and monitoring activity. Step 1 Setting up the portfolio Step 2 Adding funds Step 3 - Finalising the portfolio MERCER 9

14 8. MONTHLY FLAGSHIP REPORT Mercer s flagship monthly report is Mercer s primary vehicle for communicating our views on the prevailing economic conditions, asset class analysis, Dynamic Asset Allocations and Strategic Asset Allocations across different risk levels, relative valuation and benchmark tables, manager news and updates, investment themes and risks, strategic research articles, historical returns and assumptions for asset classes, manager news and manager surveys. We recognise that advisers face significant time constraints and look to their research house to provide knowledge in the form of clear weekly and monthly deliverables: weekly alerts and a monthly investment report of the research house s views. Some highlights from our monthly report are summarised below: Overview: Mercer s monthly economic and market overview as well as an overview of key sections of the report. Recommended allocations SAA and DAA: Recommended SAA across our five standard risk profiles and DAA views across core and satellite asset classes as well as currency valuations. Feature article: A monthly feature article based on one of Mercer s key strategic research papers including views on the outlooks for different asset classes or investment techniques, investment trends, introductions to new or emerging asset classes and general asset class updates. Asset class analysis: Monthly analysis of core asset class performance including Australian Shares, Overseas Shares, Property and Fixed Interest. Currency analysis: Monthly analysis of major currencies including comments on recent performance as well providing an outlook as to future performance. Historical returns: Historical return information across Mercer s five risk profiles. Asset class assumptions: Listing of Mercer s Capital Market Assumptions used to formulate our risk profiles and asset allocations including total expected return, income and growth return and standard deviation. Benchmark tables: Performance of key benchmarks and indices over various time periods. Manager News: Summary of Mercer s publicised views and rating changes that have been released over the previous month. MERCER 10

15 DYNAMIC ASSET ALLOCATION VIEWS Mercer s forward looking asset class views are prepared by our specialist Dynamic Asset Allocation (DAA) team on a quarterly basis. The quarterly Market Valuation Report will provide a summary of our views of each asset class each quarter and a comment on relative valuations between asset classes (1-3 year time frame). This is provided in an adviser-friendly formatted document posted on Mercer >IS<. MERCER 11

16 9. SECTOR UPDATES Mercer s manager research boutiques are responsible for producing regular sector updates. These updates address the impacts of any current events that are occurring in the economic environment, provide analysis and evidence to support our portfolio construction views, and discuss any new managers Mercer has identified in the sector. The sector update is more than a historic summary of the sector over the previous year; it is a guide on how an investor (or adviser) should use that sector and its sub components in a portfolio given the prevailing economic climate and takes into account; suitability for client risk profile, DAA, the number and style of managers. It also provides Mercer analysis of market trends, benchmarks and general commentary. We recognise it is important to partner with advice groups so we are able to communicate a common message in our interactions with advisers. Advisers use this document to enhance their knowledge of a sector, so their portfolio construction decisions are contemporary in nature and they can confidently manage any client queries. MERCER 12

17 10. MERCER >IS< QUANT Mercer >IS< Quant is a web-based tool that provides quantitative analysis of managed funds and weighted portfolios contained within Mercer >IS<. Mercer >IS< Quant provides comprehensive analysis of investment managers past performance against their peers, the Mercer universe median or a relevant index over any period. Eight different charts and tables are provided and calculation results can be exported directly to Excel. Features include: Review investment performance against peer group and market indices over any time period Analyse return/risk characteristics Evaluate risk, asset allocations and style across investment managers Access 120 indices and more than 12,000 funds across all asset classes Classify data into more than 20 broad universes Chart, Table and Excel output Construct custom portfolios for comparison with universes Net-of-fee data currently sourced from Morningstar. Mercer >IS< Quant analysis and output is explained further below. GROWTH OF INVESTMENT The Growth of $10,000 chart plots the total return information for a fund, a selection of funds, indices, user defined portfolios or any Model Portfolios saved to Mercer >IS<. The user can define the date range, starting value, the use of a benchmark within the chart and a number of other customisation options. ROLLING RETURN The Rolling Returns chart plots the rolling return of a fund, a selection of funds, indices, users defined portfolios or Model Portfolios. The user can define the statistic used (either total or excess return) and the rolling period. The user can also elect to display quarterly return information and the rolling quartiles lines for the universes the selected products sit within. A benchmark can be included within this chart. MERCER 13

18 RETURNS TABLE The Returns Table provides return and/or risk statistic information for a list of funds, indices, user defined portfolios and Model Portfolios. The user can define the date in which this calculation begins, the periods that are displayed, if risk and/or return and if a benchmark is displayed. RISK/RETURN CHART The Risk/Return Chart displays the rolling return versus risk for a fund, selection of funds, indices, user defined or Model Portfolios. The chart can display only the selected products, or can also display the risk/return information for each constituent within a selected universe. The user can select the date range for which this chart is provided over, the rolling period the return and risk statistics are calculated over, the benchmark used, the universe displayed and a number of other customisations. SNAIL TRAIL The Snail Trail plots the movement of rolling excess risk and return over a selected period for a selection of funds, user defined or Model Portfolios. The user can select the date range this calculation is conducted over, the benchmark used, as well as the rolling period and what the excess return figures are relative to (index, median or portfolio). QUARTILE CHART The Quartile Chart plots the performance of a fund, selection of funds, portfolios or model portfolio versus a selected universes return distribution. The chart displays this information over a selection of time periods. The user can select the date of the calculation, the benchmark used, the periods, the quartile range (i.e. to remove the top/bottom 5% of the universe) and the universe. RETURN CORRELATION The Return Correlation calculates the correlation of returns between each of the selected funds, indices or portfolios. The user can select the date range of the calculation, the use of excess of total return and any benchmark used within the calculation. NEGATIVE RETURN The Negative Return calculation provides the probability of a negative return for each selected fund, benchmark or portfolio over the specified periods. The user can select the date of the calculation, if and which benchmark is used, the rolling period and the periods reviewed within the calculation. MERCER 14

19 11. MERCER >IS< SUPER Mercer >IS< Super has been designed to be a market leading super fund comparison tool. We believe a key differentiating feature to be the weight of information produced and extent of fund coverage. Through our engagements with mass-affluent advice channels, given the weight of assets under advice and steady client demand for intra-fund advice, Mercer >IS< Super was created so that our clients would not have to source a super fund comparison tool separate to their core research provider. Mercer >IS< Super enables advisers to source information to form a reasonable basis for all forms of superannuation product advice. Mercer >IS< Super summarises key information on investments, insurance, services and fees in a matter of seconds. Mercer >IS< Super covers more than 200 super funds across retail funds (personal and corporate); industry funds; corporate funds, and public sector funds and includes all of APRA s top 100 funds by member numbers and AUM. Advisers can download the standard product comparison as PDF reports. They can also calculate comparisons of initial and ongoing fees and export all information and calculations to customised Word templates (for example, an advice checklist from professional standards to be completed when giving super advice). MERCER 15

20 12. SUPPORT Mercer has a helpdesk for advisers to contact regarding any system or research related queries. Advisers can either use an link within Mercer >IS<, or call our 1800 number (open 8.30am 5.30pm Monday to Friday AESDT). Any query dealt with by the Mercer >IS< help desk will be resolved within agreed SLAs (straightforward queries to the Mercer >IS< help desk are typically answered by or phone on the same day). MERCER 16

21 Mercer (Australia) Pty Ltd Darling Park Tower 3, 201 Sussex Street, Sydney NSW 2000, Australia MERCER I