Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Setting the Strategic Direction: Mercer Research Agenda

1,011 views

Published on

Deb ClarkeGlobal
Head of Investment Research

Shaum Shrinivas
Asset Allocation Specialist

Published in: Economy & Finance, Business
  • Login to see the comments

  • Be the first to like this

Setting the Strategic Direction: Mercer Research Agenda

  1. 1. #mgif SETTING THE STRATEGIC DIRECTION RESEARCH THEMES FOR 2014 Deb Clarke Shaum Shrinivas London St. Louis June 11, 2014
  2. 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. 3. What Do Our Clients Want? How do we meet these needs with regards to strategic and manager research?
  4. 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. 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. 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. 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. 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. 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. 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
  11. 11. Multiple Return Drivers Incorporate Sustainability Better Bond Portfolios Robust Equity Portfolios Be More Dynamic What Should You Be Thinking About? 2014 Themes
  12. 12. Be More Dynamic Integrating Strategic And Dynamic Strategic Asset Allocation Dynamic Asset Allocation
  13. 13. Be More Dynamic Global DAA Dashboard
  14. 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. 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. 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. 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
  18. 18. Robust Equity Portfolios Emerging Markets Have Value Emerging Markets Premium/Discount to Developed Markets Source: MSCI, Mercer
  19. 19. Robust Equity Portfolios Be Genuinely Active Source: Active Share and Mutual Fund Performance (Jan 2013) -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 30% 40% 50% 60% 70% 80% 90% 100% Stock pickers Concentrated Moderately active Closet indexers US Equity Mutual Funds 1990 - 2009 ActiveShare Alpha(%p.a.) Gross alpha Net alpha Mean active share
  20. 20. Better Bond Portfolios Within Defensive Portfolios Buy and Maintain Credit
  21. 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
  22. 22. Incorporate Sustainability AllocationtoSustainability SUSTAINABILITY OVERLAY (ENGAGEMENT, TILTING) HIGH ESG RATED STRATEGIES BROAD SUSTAINABILITY PURE PLAY (WATER, CLEAN ENERGY, TIMBER, AGRICULTURE) ASSET CLASS RiskMitigation
  23. 23. Areas of Focus in 2014 Entering the upswing? Charting a course for investment success Understanding normalization Multiple return drivers Effective ownership
  24. 24. Important notices References to Mercer shall be construed to include Mercer LLC and/or its associated companies. © 2014 Mercer LLC. All rights reserved. This contains confidential and proprietary information of Mercer and is intended for the exclusive use of the parties to whom it was provided by Mercer. Its content may not be modified, sold or otherwise provided, in whole or in part, to any other person or entity, without Mercer’s prior written permission. The findings, ratings and/or opinions expressed herein are the intellectual property of Mercer and are subject to change without notice. They are not intended to convey any guarantees as to the future performance of the investment products, asset classes or capital markets discussed. Past performance does not guarantee future results. Mercer’s ratings do not constitute individualized investment advice. Information contained herein has been obtained from a range of third party sources. While the information is believed to be reliable, Mercer has not sought to verify it independently. As such, Mercer makes no representations or warranties as to the accuracy of the information presented and takes no responsibility or liability (including for indirect, consequential or incidental damages), for any error, omission or inaccuracy in the data supplied by any third party. This does not constitute an offer or a solicitation of an offer to buy or sell securities, commodities and/or any other financial instruments or products or constitute a solicitation on behalf of any of the investment managers, their affiliates, products or strategies that Mercer may evaluate or recommend. For the most recent approved ratings of an investment strategy, and a fuller explanation of their meanings, contact your Mercer representative. For Mercer’s conflict of interest disclosures, contact your Mercer representative or see www.mercer.com/conflictsofinterest. Mercer universes: Mercer’s universes are intended to provide collective samples of strategies that best allow for robust peer group comparisons over a chosen timeframe. Mercer does not assert that the peer groups are wholly representative of and applicable to all strategies available to investors. The value of your investments can go down as well as up, and you may not get back the amount you have invested. Investments denominated in a foreign currency will fluctuate with the value of the currency. Certain investments carry additional risks that should be considered before choosing an investment manager or making an investment decision.

×