Nest quarterly investment report · Nest Sharia Fund Nest Ethical Growth Fund Nest Higher Risk Fund Nest 2040 Fund Nest Pre-Retirement Fund Nest Lower Growth Fund 5 years 68.4% 41.4%

Nest quarterly investment report

—At end June 2020

Information for investors

nestpensions.org.uk At end June 2020 2

Riskier assets like equities have had strong performance in the second quarter. This is due to investor sentiment improving in line with signs that, in some countries at least, the spread of coronavirus is being controlled and economies are beginning to open up. The positive market developments have also been supported by continued extensive policy action by governments and central banks around the world. The initial signs of rebound are encouraging but many risks remain on the road to recovery.

US equity markets have risen around 20 per cent, as some stock indexes posted their best quarterly return in decades. Emerging market equities also did well but lagged behind their US counterparts. The robust performance in equities recouped many of the losses seen in the first quarter as markets are taking solace from the belief that the worst is likely behind us.

Yields on government bonds have been steadier this quarter as the main force behind them, interest rates, have been more stable after being reduced significantly in the first quarter. Central banks lowered interest rates and used a range of further measures to support their economies. Riskier bonds have performed strongly as these measures have improved market sentiment.

Until there is a medical solution to coronavirus, markets will likely continue to be volatile as progress and setbacks ebb and flow. Risk to the recovery still exist as there still are a number of countries struggling to contain the virus and the ability of governments to provide further support to the economy is tested. However, Nest’s strategic approach to be global and diversified investors is designed for times like this – aiming to dampen some of the sharpest downturns whilst participating in the upside.

Nest quarterly investment report

Mark FawcettChief Investment Officer £11.7bn

Total Nest assets under management

0.3%Annual management charge/ total expense ratio

1.8%Contribution charge

9.2mNest members

Nest fund factsResponsible Investment UpdateThis quarter was peak voting season across most markets. As a result of the Covid-19 pandemic most companies had to move their AGMs online which meant that shareholders were not able to attend and make statements in person, but there were still opportunities to engage virtually. In line with our work on healthy markets we supported a question by ShareAction at Tesco’s virtual AGM asking the company to disclose the proportion of its sales made up by healthy food and drink products and to set ambitious targets to increase these over time.

We still saw a large number of shareholder resolutions, many focusing on climate change. We engaged with Barclays and Total on their plans to become carbon neutral and voted for shareholder resolutions calling on both companies to align their strategies with the goals of the Paris Agreement and set targets to achieve this. We’ll continue to engage with both companies as they develop strategies to transition to net zero.

https://www.nestpensions.org.uk/schemeweb/nest/aboutnest/investment-approach.html


Comparative riskThis chart indicates how we expect the annualised volatility of Nest’s funds to compare over the long term. The categories of 1 (very low risk) to 7 (very high risk) are set by the European Securities and Markets Authority.

Cumulative performanceFive year cumulative performance (net of AMC)

Nest Sharia Fund

Nest Ethical Growth

Fund

Nest Higher Risk Fund

Nest 2040 Fund

Nest Pre Retirement

Fund

Nest Lower Growth

Fund

5 years 116.9% 67.7% 53.1% 46.3% 23.6% 4.1%

Realised risk and return of Nest’s funds

This chart compares the realised risk and the return of Nest’s funds (net of AMC).

Five year cumulative performance figures at end June 2020 (net of AMC)

Nest Sharia Fund

Nest Ethical Growth Fund


Nest 2040 Retirement Fund

Nest Pre Retirement Fund

CPI

Nest Lower Growth Fund

Nest 2040 Retirement Fund


Nest Ethical Growth Fund



Nest Sharia Fund

Performance and risk metrics

0% 3% 6% 9% 12% 15% 18%0%

3%

6%

9%

12%

15%

18%

0%

2015 2016 2017 2018 2019 2020

20%

40%

60%

80%

120%

100%

5 ye

ar

ann

ualis

ed f

und

retu

rn

Annualised fund volatility since inception

1 2 3 54 76



Nest Foundation phase Fund

Nest Growth phase Fund

Nest Ethical Fund


Nest Sharia Fund



Nest 2040 Retirement Fund (default strategy – growth phase)

Default strategyNest’s flagship default strategy provides a fund for each year in which we expect a member could retire. We manage members’ assets according to their age and how markets are performing. If members join in their early twenties they’ll go through three, dynamically managed investment phases. Most members will spend most of their time invested in the growth phase. It’s the engine room of the default strategy, aiming to grow well above inflation over 30 years. The consolidation phase prepares members’ money as they approach retirement. The Nest 2040 Retirement Fund is in the growth phase of this lifecycle.*

Company Percentage within equities

MICROSOFT CORP 3.3%

APPLE INC 3.3%

AMAZON.COM INC 2.5%

ALPHABET INC 1.8%

JOHNSON & JOHNSON 1.3%

FACEBOOK INC 1.2%

JPMORGAN CHASE 1.0%

SAMSUNG ELECTRON 0.8%

NESTLE SA 0.7%

BERKSHIRE HATHAWAY 0.7%

Realised volatility

8.1%

Top 10 shareholdingsAsset allocation

Investment performance

Risk measures

Fund objectives — target investment returns equivalent to CPI plus three per cent and cover all scheme charges over the long term

— expect a long-term volatility average of 11 per cent

— aim for steady growth in real terms over the life of the fund

— maximise retirement incomes by taking sufficient investment risk at appropriate times while reducing the likelihood of extreme investment shocks

* For asset allocation of all Nest Retirement Date Funds see page 10 and for all Nest Retirement Date Fund performances please see the button at the top of this page.

54.4% of this fund is allocated to global equities portfolio.

Annualised total return net of Nest annual management charge

Benchmark CPI+ 3%

4.8% Global emerging market equities

2.8% Global listed property

2.7% Commodities

17.1% Global developed equities - GBP hedged

17.2% Global developed equities

7.7% Climate aware global developed equities GBP hedged

7.7% Climate aware global developed equities

5.6% Hybrid property

4.2% Emerging market debt

5.2% Global high yield bonds

4.8% Private credit

9.6% Sterling corporate bonds

4.9% Global corporate bonds

1.8% Short duration investment grade bonds

3.9% Low-risk sterling liquidity

0%

2%

4%

6%

8%

10%

Since launch5 years3 years1 year

4.6% 4.7%

7.9% 8.2%

4.8%4.7%

3.6%

1.9%


https://www.nestpensions.org.uk/schemeweb/dam/nestlibrary/nest-fund-performance-Q2-2020.pdf

https://www.nestpensions.org.uk/schemeweb/dam/nestlibrary/nest-fund-performance-Q2-2020.pdf


Nest Ethical Fund (growth phase)

Fund overviewThe Nest Ethical Fund is for people who want to invest in line with specific ethical or moral concerns, for example in areas such as human rights and fair trade. It doesn’t just exclude companies that harm the world, its people or the environment, it also proactively invests in organisations that make a positive contribution to society. The fund invests in a range of asset classes to manage risk appropriately at different stages of members’ lives. It follows a dynamically managed, three-stage glide path which is similar to to our flagship Nest Retirement Date Funds. This includes de-risking members’ pots as they approach retirement. The fund aims to deliver similar returns to the flagship Retirement Date Fund but it’s likely to be more volatile due to it being less diversified. Data below is for the growth phase of this lifecycle.



Fund objectives — provide a fund choice for members who want to invest in a portfolio that reflects their ethical concerns

— target investment returns of inflation plus three per cent and cover all scheme charges over the long term


— aim for steady growth in real terms over a members’ time saving and maximise incomes in retirement by taking sufficient investment risk at appropriate times while reducing the likelihood of investment shocks


MICROSOFT CORP 6.2%

APPLE INC 5.7%

LINDE PLC 3.9%

MASTERCARD 3.3%

THERMO ELECTRON 3.2%

ACCENTURE 3.0%

PAYPAL 2.8%

ROPER TECHNOLOGIES INC 2.7%

CROWN CASTLE REIT 2.4%

METTLER TOLEDO 2.4%

Realised volatility

8.1%

Risk measures


60.2% Ethical global equities

9.9% UK direct property

20.0% Ethical sterling corporate bonds



Benchmark CPI+ 3%

0%

2%

4%

6%

8%

10%

12%


8.6%

3.6%

9.2%

4.7%

10.9%

4.7% 4.8%

10.6%




Fund overviewThe Higher Risk Fund is for members who are more confident about taking investment risk in the expectation that their pot will grow faster.



Fund objectives — take more investment risk than the Nest Retirement Date Funds in the growth phase in pursuit of higher potential returns


— reduce the likelihood of extreme investment shocks by diversifying across a range of return-seeking asset classes


MICROSOFT CORP 3.3%

APPLE INC 3.2%

AMAZON.COM INC 2.5%

ALPHABET INC 1.8%


FACEBOOK INC 1.2%

JPMORGAN CHASE 1.0%

SAMSUNG ELECTRON 0.8%

NESTLE SA 0.7%

BERKSHIRE HATHAWAY 0.7%

Realised volatility

10.7%

Risk measures


6.5% Global emerging market equities

4.0% Global listed property

3.3% Commodities

22.0% Global developed equities - GBP hedged

22.1% Global developed equities

9.7% Climate aware global developed equities GBP hedged

9.9% Climate aware global developed equities

6.1% Hybrid property

6.7% Emerging market debt

9.7% Global high yield bonds


0%

2%

4%

6%

8%

10%


8.9%

4.5%

9.3%

0.1%



Nest Sharia Fund

Fund overviewThe investments in this fund are screened by Islamic scholars to meet Sharia standards. Lifestyling and diversification at the asset allocation level are not currently possible for this fund as it invests entirely in a single asset class.


Fund objectives — provide a fund with an investment approach based on Islamic law


— grow a member’s pot in real terms over the course of their savings career



APPLE INC 7.5%

MICROSOFT CORP 7.5%

ALPHABET INC 6.6%

FACEBOOK INC 3.7%


VISA 2.2%

PROCTER & GAMBLE 2.0%

HOME DEPOT 1.8%

MASTERCARD 1.8%

INTEL 1.7%

Realised volatility

12.7%

Risk measures

100% of this fund is allocated to global equities portfolio.

100% Sharia compliant equities


0%

5%

10%

15%

20%

25%


20.4%

15.4%16.8%

14.1%




Fund overviewThis fund is provided for members who are very cautious about investing and are prepared to accept their pot will not grow very much. The aim of the fund is to maintain the value of members’ savings after all scheme charges over the long term. It may not keep up with the rising cost of living.


Fund objectives — preserve the nominal value of contributions after all scheme charges over the long term and grow the fund in line with low-risk money market investments

— expect a long-term volatility average of 0.5 per cent

Asset allocation Risk measures

Realised volatility

0.7%

100% Short duration investment grade bonds


0.0%

0.5%

1.0%

1.5%

2.0%


1.3%1.4%

0.8%

0.5%




Fund overviewThis fund provides a savings vehicle for members close to retirement who expect to buy an annuity and take 25 per cent of their pot as a cash lump sum.


Fund objectives — invest in 75 per cent annuity-tracking and 25 per cent liquidity-matching assets

Asset allocation Risk measures

Realised volatility

4.1%

37.7% Sterling corporate bonds

37.4% Gilts



0%

2%

4%

6%

8%

10%


6.1%

3.8%4.3% 4.7%



Nest Retirement Date Funds’ asset allocation

Global emerging market equities

Global listed property

Commodities

Global developed equities

Global developed equities - GBP hedged

Climate aware global developed equities

Climate aware world equity GBP hedged fund

Hybrid property

Private credit

Emerging market debt

Global high yield bonds

Sterling corporate bonds

Global corporate bonds

Low risk sterling liquidity

Short duration investment grade bonds

Nest funds underlying holdingsClick below to see the underlying holdings that make up Nest’s funds. Note that this shows our allocation by fund and not by asset class.

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

0%

Sta

rter

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

2040

2041

2042

2043

2044

2045

2046

2047

2048

2049

2050

2051

2052

2053

2054

2055

2056

2057

2058

2059

2060

2061

2062

2063

2064

2065

20%

40%

60%

80%

100%


https://www.nestpensions.org.uk/schemeweb/dam/nestlibrary/underlying-holdings-Q2-2020.pdf

https://www.nestpensions.org.uk/schemeweb/dam/nestlibrary/underlying-holdings-Q2-2020.pdf


Overall exposure to underlying funds

Asset classInvestment approach Fund name Benchmark** ISIN**

Exposure to asset class*

Commodities Active Nest/CoreCommodity Program Bloomberg Commodity Index Total Return N/A 2.3%

Emerging market debt Active Amundi Funds Global Emerging Blended - IE 50% JPM EMBI Global Diversified Hedged Euro/50% JP Morgan ELMI Plus

LU1361117796 4.3%

Ethical global equities Active BMO Responsible Global Equity Fund MSCI World Index GB0033145045 0.4%

Ethical sterling corporate bonds Active BMO Responsible Sterling Bond Fund iBoxx Sterling Non-Gilt All Maturities Index GB00B23YHV29 0.2%

Gilts Passive SSGA UK Conventional Gilts All Stocks Index Fund FTSE Actuaries UK Conventional Gilts All Stock Index GB00BWDBJB71 0.0%

Global corporate bonds Active Nest/Wells Fargo Global Investment Grade Corporate Bond Strategy

Bloomberg Barclays Global Aggregate Corporate Index GBP Hedged

N/A 5.0%

Global developed equities - GBP hedged Passive UBS Life World Equity Tracker GBP Hedged Fund FTSE All World Developed Index GBP Hedged GB00BWD1K926 15.4%

Global developed equities Passive UBS Life World Equity Tracker Fund FTSE All World Developed Index GB00B3QVMY53 15.4%

Global developed equities Passive UBS Life Climate Aware World Equity Fund FTSE All World Developed Index GB00BYVGL782 7.2%

Global developed equities - GBP hedged

Passive UBS Life Climate Aware World Equity GBP Hedged Fund FTSE All World Developed Index GBP Hedged GB00BJJNNS16 7.1%

Global emerging market equities Passive Northern Trust Emerging Markets Custom ESG Equity Index Fund

MSCI Emerging Markets Custom ESG Index IE00BN79QV37 3.9%

Global high yield bonds Active JPMorgan Life High Yield Opportunities Fund ICE BofA ML Non-Financial Developed Markets High Yield Constrained Index Hedged to GBP

GB00BYW8WR05 5.1%

Global property Passive LGIM Global Real Estate Equity Index Fund FTSE EPRA Nareit Developed Real Estate Index GB00B6V63105 2.6%

Hybrid property Active LGIM Hybrid Property (70:30) Fund AREF/IPD UK Quarterly All Balanced Property Funds Index/FTSE EPRA Nareit Developed Real Estate Index

GB00B6V67X08 5.4%

Low-risk sterling liquidity Active Amundi Money Market Fund - Short Term GBP UK SONIA LU0801640250 1.1%

Low-risk sterling liquidity Active BlackRock ICS Sterling Liquid Environmentally Aware Fund (LEAF)

GBP 1 week LIBID IE00BKC9GJ54 5.0%

* Figures shown to 1 decimal place and may be affected by rounding. ** Where appliciable



Overall exposure to underlying fundsContinued

Asset classInvestment approach Fund name Benchmark** ISIN**

Exposure to asset class*

Private credit Active Amundi Global Commercial Real Estate Debt Fund 3 month LIBOR N/A 1.1%

Private credit Active BlackRock GBP Infrastructure Debt Fund GP LLP 3 month LIBOR N/A 0.9%

Private credit Active BNP Diversified Private Credit Fund S.C.Sp. SICAV-RAIF 3 month LIBOR N/A 1.6%

Sharia compliant equities Passive HSBC Islamic Global Equity Index Fund Dow Jones Islamic Titans 100 Index LU1092475968 0.3%

Short duration investment grade bonds Active Blackrock Institutional Sterling Ultra Short Bond Fund GBP 3 month LIBID IE00BFZD2350 2.3%

Short duration investment grade bonds Active Royal London Investment Grade Short Dated Credit Fund ICE BofA ML 1-5 year Sterling Non-Gilt All Stocks Index GB00BDR6MS36 3.6%

Sterling corporate bonds Active Royal London UK Corporate Bond Fund iBoxx Sterling Non-Gilt All Maturities Index GB00B7N8ML46 9.7%

UK direct property Active LGIM Managed Property Fund AREF/IPD UK Quarterly All Balanced Property Funds Index GB00B6V5QR44 0.1%

* Figures shown to 1 decimal place and may be affected by rounding. ** Where appliciable



Important information

The value of investments may go down as well as up and the return of your investment is not guaranteed. Fluctuations in financial markets, currencies and other risks may cause fluctuations in the value of investments. Any fund objective or target should not be considered as guarantee of performance of any fund. Derivatives may also be used for efficient portfolio management purpose.

This document does not constitute advice on whether to invest in these funds. Neither this document nor any data contained within this document is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. You may wish to consult with an appropriately qualified financial adviser in relation to your investments and any change to them.

This document has been created by National Employment Savings Trust (Nest). This document is valid as at the date of its publication. This document and data contained within this document is provided for information purposes only and may not be reproduced or extracted or used for any other purpose.

This document includes and/or is based on data that is owned by and obtained from third party sources. Data from third party sources is provided “as is” and is not verified by Nest. Additional disclaimers which apply to the third party data are available on our website nestpensions.org.uk

The return figure are net of costs and charges, including the annual management charge (AMC) and transaction costs* but not contribution charges.

No undertaking is given, or representation or warranty is made, express or implied, by Nest or by any third party source that the information in this document is current, accurate, complete or error free, and the information must not be relied upon as such. Neither the third party sources nor Nest accept responsibility for any loss caused to any recipient of this document as a result of any error, inaccuracy or incompleteness of this document or as a result of any third party data.

© Nest Corporation 2020

*The transaction costs include both explicit and implicit costs (where applicable)

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Documents

Nest quarterly investment report · Nest Sharia Fund Nest Ethical Growth Fund Nest Higher Risk Fund Nest 2040 Fund Nest Pre-Retirement Fund Nest Lower Growth Fund 5 years 68.4% 41.4%