Who is Mercer Investment Consulting?
For more than 30 years, Mercer has provided the highest quality of investment advice and practical solutions to corporations, foundations, trustees, and endowments on a global basis. Investment advice and recommendations are supported by over 600 full-time consultants advising over 2,700 clients with assets in excess of $3.5 trillion.
What are the major components of the Foundation’s Investment Program?
- Because asset allocation is the most important variable in investment performance, the new program gives investors a choice of three Investment Fund models – Conservative Fund, Moderate Fund and Aggressive Fund. Based on the objectives of each fund, Hammond has set a target allocation for each asset class in the portfolios.
- The three Investment Funds are broadly diversified across ten asset classes.
- Lower cost passive index managers are used in all three funds, efficient, traditional investment market classes. Previously the Foundation’s portfolios were all actively managed. The use of index funds will result in a savings in investment fees of 10 – 20 basis points (0.1% – 0.2%).
Where are the assets of the Foundation’s Investment Program held?
The Foundation contracts with Charles Schwab & Company, Inc. for custodial services. Mercer has developed an agreement with Charles Schwab resulting in free custodial services for Mercer clients.
What about socially responsible investing?
The Foundation remains committed to using the socially responsible investment (SRI) practices, reflecting the values of The United Methodist Church as described in The Book of Discipline of The United Methodist Church and The Book of Resolutions of The United Methodist Church. Informing all positions are 160-165, “The Social Principles”, from The Book of Discipline, and Resolution 312, “Investment Ethics”, from The Book of Resolutions. The Foundation uses the portfolio screening standards and restrictions established by the General Board of Pensions of the United Methodist Church. In asset classes where our funds will use indexed funds, managers have been identified that can offer customized index products, with specific market sectors and/or individual companies screened out of the index.
How does socially responsible investing affect investment performance?
Socially responsible investing (SRI) spans a wide and growing range of products and investments, with estimates of $1 in $9 (more than $3 trillion) invested now participating in socially responsible practices. Like all investors, socially responsible investors seek a competitive financial return on their investments, and the good news is that it is possible to consistently achieve this. A growing number of academic studies have demonstrated that SRI mutual funds perform competitively with non-SRI funds over time.
Why are Index Managers being used in some asset classes?
In certain asset classes, the markets respond almost immediately to any changes in the investment environment. For example, when information is announced about US economic indicators that is especially disappointing or exceeding previous estimates, the domestic markets have adjusted for that news within a very short time frame, perhaps within hours. It is difficult for investment managers to outperform the market after investment fees and transaction costs are deducted in these efficient markets. And the cost advantage in using index managers is significant. For example the costs to index the S&P 500 are typically one-tenth the cost of active large-cap management (including trading costs).
How can I get more information on Mercer’s investment research and forecasts and their best ideas for investment of institutional funds?
Mercer’s Research Department publishes a quarterly Research Report and hosts a quarterly teleconference for its investors. The Executive Summary of the report is available on our website. Investors are also invited to join the quarterly market analysis telecofnerence. For more information, contact us.
Which Investment Fund will maximize income for our account(s)?
For investors with a goal to maximize current income and who are limited to withdrawals of interest and dividends only, the Conservative Fund offers the highest potential yield. However, for those funds that are permanent investments, such as endowment funds, an investment strategy that spends only earnings from dividends and interest and invests the funds to maximize current income ignores another important issue: the cost of inflation over time. To discuss the possibility of using a total return approach for investment contact us.
What is a Total Return Investment Strategy?
The total return on an investment includes income from dividends and interest, as well as appreciation or depreciation in the value of the investment, over a given time period. Investments that are considered permanent funds, such as endowment funds, are charged with protecting the corpus (principal) of the fund and spending only the earnings. In order to preserve the purchasing power of the permanent fund, inflation must be taken into account. An investment strategy for such funds balances both current and future income as well as maintaining the purchasing power of the fund. Thus one of these investment objectives may be most appropriate for permanent funds:
- Balancing long-term growth of the fund and current income, or
- Maximizing long-term growth of the fund
A Total Return investment strategy may be accompanied by a Total Return Spending Policy.
What is a Total Return Spending Policy?
Rather than setting spending from the fund at the amount of interest and dividends received for a period of time, a Total Return Spending Policy establishes a percentage of the total fund as the amount available for spending. Generally the percentage is 3.5% -5% of the 3-year (or 5 – year) rolling average market value of the fund. The market value of the fund includes principal, interest earned, capital appreciation and/or capital depreciation over the period. For more information on Total Return and how it might be appropriate for one or more of your funds, contact us.