At end June 2018

NEST quarterly investment report

Mark Fawcett made clear that its quantitative easing Comparative risk NEST fund facts
Chief investment programme will stop after December,
officer whereas interest rates will most likely This chart indicates how we expect the annualised volatility of NEST’s funds to Total NEST assets under
be kept unchanged until late 2019. compare over the long term. The categories of 1 (very low risk) to 7 (very high management:
Geopolitical risk) correspond to those set out by the European Securities and Markets £3.4bn
NEST’s funds are shielded as our fixed
concerns are Authority. The current volatility of each fund can be found in the fund specific
income exposure is predominantly in
dominating headlines information contained in this report. Annual management charge/
corporate bonds, where markets have
again. Trade threats between the US total expense ratio:
already priced in many of the effects. NEST NEST NEST NEST
and China are becoming more Pre-retirement Foundation phase Ethical Fund Sharia Fund 0.3%
frequent with both economies
pledging to implement counter Investing responsibly highlights Pricing basis:
measures. As a result, markets have This voting season NEST supported a 1 2 3 4 5 6 7 Single price
been exhibiting more volatility on climate resolution at Shell’s AGM, NEST members:
both sides of the Atlantic. In the US, calling for carbon reduction targets in NEST NEST NEST 6,900,000
equity performance has taken a hit line with the Paris Agreement. We Lower Growth Growth phase Higher Risk Fund
while in Europe Italy’s political convinced our fund managers to NEST employers:
deadlock resulted in a short-lived change certain votes, including to Risk category Annualised volatility Description of volatility 658,000
sell-off in both equity and sovereign support a shareholder resolution
bond markets at the end of May. 1 0-0.5% Very low
regarding Walmart’s diversity pay gap
NEST’s funds have stayed relatively 2 0.5-2% Low
and to vote against the pay report at
unharmed thanks to very low 3 2-5% Medium
Lloyds Banking Group. NEST
exposure to Italian equities in our 4 5-10% Medium to high
individually voted against
developed market funds and a 5 10-15% High
management at several other
diversified portfolio that isn’t overly 6 15-25% Very high
company AGMs, including housing
reliant on US equities. We’re looking 7 >25% Very high
group Persimmon due to
to diversify further into real assets disproportionate executive pay. Cumulative performance
and more illiquid markets soon, which
150% NEST Sharia Fund
should provide new return We reported in line with the Taskforce 1.5
NEST Higher Risk Fund
opportunities beyond US equities. for Climate-Related Disclosures
120%
1.2 NEST Ethical Growth Fund
(TCFD) in our annual report and
In bond markets, the ongoing Brexit NEST 2040 Retirement Fund
accounts for the first time. The TCFD 90%
0.9 NEST Pre-Retirement Fund
negotiations suggest a rate hike by aims to improve disclosure standards CPI
the Bank of England is increasingly and transparency around how 60%
0.6 NEST Lower Growth Fund
likely in August. The US Federal companies are considering and
Reserve raised its benchmark interest managing climate risks. 30%
0.3
rate as predicted in June and is
expected to hike rates twice more this 0%
0.0
year. The European Central Bank 2011 2012 2013 2014 2015 2016 2017 2018
-30%
-0.3
1
At end June 2018

NEST 2040 Retirement Fund (default strategy – growth phase)

Default strategy Top shareholdings
NEST’s flagship default strategy provides a fund for each year a member could retire. We manage members’ assets Company Percentage of fund
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 APPLE INC 1.9%
the engine room of the default strategy, aiming to grow well above inflation over 30 years. The foundation phase takes a MICROSOFT CORP 1.6%
moderate amount of risk to avoid sharp falls that could put young savers off. The consolidation phase prepares members’
money as they approach retirement. The NEST 2040 Retirement Fund is in the growth phase of this lifecycle.* AMAZON.COM INC 1.4%

Fund objectives Asset allocation ALPHABET INC 1.4%

target investment returns 100

100% 7.3% Global emerging market equities FACEBOOK INC 1.0%
equivalent to CPI plus 3 per cent 3.6% Global listed property
BERKSHIRE HATHAWAY INC 0.8%
and cover all scheme charges 34.7% Global developed equities
14.7% Climate aware global developed equities
80 JPMORGAN CHASE & CO 0.7%
expect a long-term volatility 80% 8.7% Hybrid property
average of 11 per cent 4.0% Emerging market debt
JOHNSON & JOHNSON 0.7%
3.5% Global high yield bonds
aim for steady growth in real 60 13.5% Sterling corporate bonds
60% EXXON MOBIL CORP 0.7%
terms over the life of the fund 5.4% Dynamic risk management
4.0% Short duration investment grade bonds BANK OF AMERICA CORP 0.6%
maximise retirement incomes by
0.6% Low-risk sterling liquidity
taking sufficient investment risk 40
40% Shares make up 56.8 per cent of this fund.
at appropriate times while This table shows the proportion of these holdings within this allocation
reducing the likelihood of
extreme investment shocks
Investment performance
20
20%
12
10.8%
10.2%
10 9.7%
0%0
8
Risk measures** 6 5.7% 5.5%
4.9% 4.5% 4.9%
Annualised volatility Sortino ratio*** 4

6.7% 2.8 2

0
* For asset allocation and performance of all NEST Retirement Date Funds see pages 8 and 9 of this report 1 Year 3 Years 5 Years Since launch
** Since launch Annualised total return, net of annual management charge

*** The Sortino ratio measures a fund’s performance relative to the downside volatility it experienced in the Benchmark CPI + 3%
same period.
NEST Quarterly investment report 2
At end June 2018

NEST Ethical Fund (growth phase)

Fund overview Top shareholdings
The NEST Ethical Fund is for people who want to invest in line with specific ethical or moral concerns, for example in Company Percentage of fund
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 APPLE INC 4.1%
a range of asset classes to manage risk appropriately at different stages of members’ lives. It follows a dynamically MASTERCARD INC 3.4%
managed, three-stage glide path that aims to offer similar sophistication to our flagship NEST Retirement Date Funds,
including de-risking members’ pots as they approach retirement. Data below is for the growth phase of this lifecycle. PRUDENTIAL PLC 3.1%

Fund objectives Asset allocation XYLEM INC/NY 3.0%

provide a fund choice for members 100

100% 61.9% Ethical global equities AMAZON.COM INC 3.0%
who want to invest in a portfolio 13.9% UK direct property
that reflects their ethical concerns 19.8% Ethical sterling corporate bonds ACCENTURE PLC 2.7%
4.0% Dynamic risk management
target investment returns of 80
80% ROPER TECHNOLOGIES INC 2.5%
0.4% Low-risk sterling liquidity
inflation plus 3 per cent and cover PAYPAL HOLDINGS INC 2.5%
all scheme charges and expect a
long-term volatility average of 13 60
60% PRAXAIR INC 2.5%
per cent
UNION PACIFIC CORP 2.4%
aim for steady growth in real terms
40
40%
over a members’ time saving and Shares make up 61.9 per cent of this fund.
This table shows the proportion of these holdings within this allocation
maximise incomes in retirement by
taking sufficient investment risk at Investment performance
appropriate times while reducing 20
20%
the likelihood of investment 15
shocks 12.1%
12 11.5% 11.2%
0%0

9 8.7%
Risk measures*
6 5.5%
4.9% 4.5% 4.9%
Annualised volatility Sortino ratio**
7.0% 3.2 3

0
1 Year 3 Years 5 Years Since launch
* Since launch Annualised total return, net of annual management charge

** The Sortino ratio measures a fund’s performance relative to the downside volatility it experienced in the Benchmark CPI + 3%
same period.
NEST Quarterly investment report 3
At end June 2018

NEST Higher Risk Fund

Fund overview Top shareholdings
The Higher Risk Fund is for members who are more confident about taking investment risk in the expectation that their Company Percentage of fund
pot will grow faster. The strategy reduces risk as members approach retirement by automatically moving their pot into the
appropriate NEST Retirement Date Fund when they’re 10 years from their planned retirement date. APPLE INC 1.9%

MICROSOFT CORP 1.6%

AMAZON.COM INC 1.4%

Fund objectives Asset allocation ALPHABET INC 1.4%

take more investment risk than 100

100% 9.7% Global emerging market equities FACEBOOK INC 1.0%
the NEST Retirement Date Funds 3.9% Global listed property
in pursuit of higher potential 44.2% Global developed equities BERKSHIRE HATHAWAY INC 0.7%
returns 18.8% Climate aware global developed equities
80
80% JPMORGAN CHASE & CO 0.7%
9.3% Hybrid property
expect a long-term volatility 7.7% Emerging market debt
JOHNSON & JOHNSON 0.7%
average of 17 per cent 6.4% Global high yield bonds
60
60% EXXON MOBIL CORP 0.7%
reduce the likelihood of extreme
investment shocks by diversifying BANK OF AMERICA CORP 0.6%
across a range of return-seeking
40
40%
asset classes Shares make up 72.7 per cent of this fund.
This table shows the proportion of these holdings within this allocation

Investment performance
20
20%
15
12.9%
4.8% 11.9% 11.3%
12
0%0

9
Risk measures* 6.6%
4.9%
6 4.4%
Annualised volatility Sortino ratio**
9.3% 2.2 3

0
1 Year 3 Years 5 Years Since launch
* Since launch Annualised total return, net of annual management charge

** The Sortino ratio measures a fund’s performance relative to the downside volatility it experienced in the
same period.
NEST Quarterly investment report 4
At end June 2018

NEST Sharia Fund

Fund overview Top shareholdings
The investments in this fund are screened by Islamic scholars to meet Sharia standards. Lifestyling and diversification at Company Percentage of fund
the asset allocation level are not currently possible for this fund as it invests entirely in a single asset class.
APPLE INC 6.8%

MICROSOFT CORP 6.3%

ALPHABET INC 5.6%

Fund objectives Asset allocation FACEBOOK INC 3.9%

provide a fund with an investment 100

100% 100% Sharia compliant equities EXXON MOBIL CORP 2.9%
approach based on Islamic law
JOHNSON & JOHNSON 2.7%
expect a long-term volatility
average of 22 per cent 80
80% CHEVRON CORP 2.0%

grow a member’s pot in real terms VISA INC 2.0%

over the course of their savings 60
60% INTEL CORP 1.9%
career
HOME DEPOT INC 1.9%

40
40% Shares make up 100 per cent of this fund.
This table shows the proportion of these holdings within this allocation

Investment performance
20
20%
20
16.7% 17.0%
0%0 14.4% 14.6%
15 13.5% 14.1%
12.0% 11.8%
Risk measures* 10

Annualised volatility Sortino ratio**

5
11.9% 2.1

0
1 Year 3 Years 5 Years Since launch
* Since launch Annualised total return, net of annual management charge

** The Sortino ratio measures a fund’s performance relative to the downside volatility it experienced in the NEST Islamic Titans World Index
same period.
NEST Quarterly investment report 5
At end June 2018

NEST Lower Growth Fund

Fund overview Investment performance
This fund is provided for members who are very cautious about investing and are prepared to accept their pot will not 1.2
grow very much. The aim of the fund is to maintain the value of members’ savings after charges. It may not keep up with 1.0%
the rising cost of living. 1.0

0.8
0.6%
0.6 0.5% 0.5%

Fund objectives Asset allocation 0.4

0.3% 0.3%
0.3% 0.3%

preserve the nominal value of 100 100% Short duration investment grade bonds 0.2
100%
contributions after charges and 0.0
grow the fund in line with low-risk 1 Year 3 Years 5 Years Since launch
money market investments 80 Annualised total return, net of annual management charge
80%
achieve an investment return that 7 day sterling libid rate (GBP)

is in line with or better than

wholesale money market short- 60
60%
term interest rates after charges Risk measures*
expect a long-term volatility Annualised volatility Sortino ratio**
40
40%
average of 0.5 per cent
0.2% 1.4

20
20% * Since launch

** The Sortino ratio measures a fund’s performance relative to the downside volatility it experienced in the
same period.

0%0

NEST Quarterly investment report 6

At end June 2018

NEST Pre-retirement Fund

Fund overview Investment performance
This fund provides a savings vehicle for members close to retirement who expect to buy a retirement income through an 6
annuity and take 25 per cent of their pot as a cash lump sum.
5 4.8%
4.1% 4.2%
4

3
2.4%
1.9% 1.9%
Fund objectives Asset allocation 2 1.6% 1.5%

invest in 75 per cent annuity- 100 37.5% Sterling corporate bonds 1

100%
tracking and 25 per cent liquidity- 37.6% Gilts
0
matching assets 24.9% Low-risk sterling liquidity 1 Year 3 Years 5 Years Since launch

80 Annualised total return, net of annual management charge

expect a long-term volatility 80%
average of 4 per cent Benchmark CPI

60
60%
Risk measures*

40
40%
Annualised volatility Sortino ratio**
4.2% 1.8

20
20% * Since launch

** The Sortino ratio measures a fund’s performance relative to the downside volatility it experienced in the
same period.

0%0

NEST Quarterly investment report 7

At end June 2018

NEST Retirement Date Funds’ asset allocation

100% Global emerging market equities
1.0 Global listed property
Global developed equities
Climate aware global developed equities
Hybrid property
Emerging market debt
80% Global high yield bonds
0.8 Index-linked gilts
Sterling corporate bonds
Dynamic risk management
Gilts
Short duration investment grade bonds
Low-risk sterling liquidity
60%
0.6

40%
0.4

20%
0.2

0%
0.0
Starter
2064
2063
2062
2061
2060
2059
2058
2057
2056
2055
2054
2053
2052
2051
2050
2049
2048
2047
2046
2045
2044
2043
2042
2041
2040
2039
2038
2037
2036
2035
2034
2033
2032
2031
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
NEST Quarterly investment report 8
At end June 2018

NEST fund performance

* Launch date for most NEST Funds
NEST Fund 1 year 3 year 5 year Since launch* NEST Fund 1 year 3 year 5 year Since launch* is August 2011. The NEST 2058
Retirement Fund launched in January
Starter** 4.0 8.1 8.0 8.1 2037 5.8 10.8 10.2 9.7 2012. Each subsequent fund was
launched the following January. So
2064 - - - 1.1 2036 5.7 10.8 10.2 9.7 the NEST 2059 Retirement Fund
Fund was launched in January
2063 4.5 - - 5.2 2035 5.8 10.8 10.2 9.7
2013 and so on.
2062 4.6 - - 9.1 2034 5.7 10.8 10.2 9.7
** NEST makes this fund available to
2061 4.6 8.4 - 7.3 2033 5.7 10.8 10.2 9.7 members joining before they’re
eligible for auto enrolment.
2060 4.6 8.4 - 7.6 2032 5.7 10.8 10.2 9.7
*** NEST makes this fund available to
2059 4.6 8.4 8.1 8.4 2031 5.7 10.8 10.1 9.7 members who leave money in NEST
after State Pension Age. Members’
2058 4.7 8.4 8.0 8.3 2030 5.7 10.8 10.2 9.7 money can also be moved to the
Post Retirement Fund if they’ve
2057 4.7 8.6 8.2 8.2 2029 5.7 10.8 10.2 9.7 selected a retirement date between
their 55th birthday and their State
2056 5.0 8.9 8.4 8.4 2028 5.7 10.8 10.1 9.7 Pension Age if they don’t retire on
the date they chose. This is because
2055 5.2 9.5 8.8 8.6 2027 5.5 10.7 10.1 9.7
the NEST Retirement Date Fund they
2054 5.4 10.0 9.1 8.9 2026 5.1 10.3 9.9 9.5 were invested in would have matured
and closed down and at this stage
2053 5.7 10.5 9.6 9.2 2025 4.7 9.7 9.6 9.3 we move the money over to the Post
Retirement Fund.
2052 5.7 10.9 10.0 9.5 2024 4.4 9.2 9.2 9.0
2051 5.7 10.8 10.1 9.7 2023 4.1 8.6 8.7 8.6
2050 5.7 10.8 10.2 9.7 2022 3.7 8.1 8.1 8.1
2049 5.7 10.8 10.2 9.8 2021 3.3 7.6 7.5 7.6
2048 5.7 10.8 10.2 9.8 2020 1.8 4.2 5.9 6.4
2047 5.7 10.8 10.2 9.7 2019 1.3 3.3 5.2 5.8
2046 5.7 10.8 10.2 9.7 2018 0.8 2.0 4.4 5.1
2045 5.7 10.8 10.2 9.7 NEST Ethical Growth Fund 8.7 12.1 11.5 11.2
2044 5.7 10.8 10.2 9.7 NEST Sharia Fund 12.0 16.7 14.4 13.5
2043 5.7 10.8 10.2 9.7 NEST Higher Risk Fund 6.6 12.9 11.9 11.3
2042 5.7 10.8 10.2 9.7 NEST Lower Growth Fund 1.0 0.6 0.5 0.5
2041 5.7 10.8 10.2 9.7 NEST Pre-retirement Fund 1.6 4.1 4.2 4.8
2040 5.7 10.8 10.2 9.7 Post-retirement*** 0.8 0.8 - 0.7
2039 5.7 10.8 10.2 9.7 CPI 2.4 1.9 1.5 1.9
2038 5.8 10.8 10.2 9.7 CPI+3% 5.5 4.9 4.5 4.9

NEST Quarterly investment report 9

At end June 2018

Overall exposure to underlying funds

Investment Exposure to
Asset class approach Fund name Benchmark asset class*
Global developed equities Passive UBS Life World Equity Tracker FTSE All World Developed Index 30.9%

Global developed equities Passive UBS Life Climate Aware World Equity Fund FTSE All World Developed Index 13.8%

Gilts Passive SSGA UK Conventional Gilts All Stocks Index Fund FTSE Actuaries All Stocks Index 0.1%

UK index-linked gilts Passive SSGA UK Index Linked Gilts over 5 Years Index Fund FTSE Actuaries Index Linked Gilts over 5 years Index 0.1%

Dynamic risk management Active Amundi NEST Equity Risk Management fund N/A 4.5%

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

Low-risk sterling liquidity Active BlackRock Aquila Connect Cash Fund Seven-day LIBID 0.6%

Ultra Short Duration Investment Grade Credit Active Blackrock Institutional Sterling Ultra Short Bond Fund GBP 3 Month LIBID 3.7%

Short Duration Investment Grade Credit Active Royal London Investment Grade Short Dated Credit ML 1-5 year Sterling Non-Gilt All Stocks 6.5%

Global ethical equities Active BMO F&C Responsible Global Equity Fund** MSCI World Index 0.2%

Sharia compliant equities Passive HSBC Islamic Global Equity Index Fund Dow Jones Islamic Titans 100 0.1%

Sterling bonds Active Royal London UK Corporate Bond Pooled Pension Fund iBoxx Sterling Non-Gilt All Maturities Index 13.4%

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

Hybrid property Active LGIM Hybrid Property (70/30) Fund FTSE EPRA/NAREIT Global REITS/REF/IPD UK Quarterly Property All Balanced 8.3%
Funds Index

Global property Passive Global Real Estate Equity FTSE EPRA/NAREIT Global Developed Real Estate Index 3.3%

Ethical corporate bonds Active BMO F&C Responsible Sterling Bond Fund** iBoxx Sterling Non-Gilt All Maturities Index 0.1%

Emerging markets (alternative index) Passive HSBC GIF Economic Scale Index Emerging Markets Equity Fund MSCI Emerging Markets 2.3%

Emerging markets (alternative index) Passive Northern Trust Emerging Markets Custom ESG Equity Index Fund MSCI Emerging Markets Custom ESG Index 3.4%

Emerging market debt Active Amundi Funds Global Emerging Blended - IE 50% JPM EMBI Global Diversified Hedged Euro/50% JP Morgan ELMI Plus 4.1%

Global high yield bonds Active JP Morgan Life High Yield Opportunities Fund Bank of America Merrill Lynch Non-Financial Developed Markets High Yield 3.4%
Constrained Index (Hedged to GBP)

Single Year Gilts Passive LGIM Single Year Gilt Funds N/A 0.0%

*Figures may be affected by rounding. **Please note that F&C funds are distributed by BMO Global Asset Management.
NEST Quarterly investment report10
At end June 2018

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 this fund. 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 www.nestpensions.org.uk

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 2018

p19530-v1 14255 07/18 NEST Quarterly investment report 11