Market & Performance Update: Quarterly - SEI
Monthly Market Commentary November 2015
Heightened geopolitical tensions weighed on investor sentiment amid a lack of monetary policy changes in November. Global equity and fixed-income market returns were mostly negative as the U.S. dollar strengthened. Our tactical view continues to favor equities over bonds, developed international exposure over the U.S., long-dollar positions against a variety of currencies, and a generally pro-cyclical orientation within sectors.
Economic Backdrop Rising geopolitical tensions defined November, as Paris, Beirut and Bamako, Mali were attacked mid-month by religious extremists. Russia also suffered casualties, with the downing of a civilian airliner over Egypt on the last day of October and of a fighter jet by the Turkish military near the Turkey-Syria border in late November. France urged allies to expand their involvement in the U.S.-led air strike coalition targeting Islamic State in Iraq and Syria. The air campaign, in conjunction with a ground offensive led by Kurdish forces, reclaimed lost territory in Northern Iraq. No major monetary policy changes were enacted; although posturing underscored a potentially imminent transatlantic divergence. The U.S. Federal Open Market Committee’s October meeting minutes stated that an interest-rate increase will be under consideration at its next meeting in mid-December; Chair Janet Yellen remarked that a rate hike would be a “live possibility” at that time. The Bank of England held firm amid softened near-term inflation expectations, while minutes from the European Central Bank’s October meeting supported speculation around additional easing following its meeting on 3 December. The Bank of Japan continued its zero-interest-rate policy and asset-purchase program, as third-quarter economic activity crossed into recession territory. The International Monetary Fund’s introduction of China’s renminbi to its Special Drawing Rights basket at the end of November represented a milestone in attaining reserve-currency status. U.S. services sector growth reached a multi-month high in November, according to early projections, while manufacturing growth decelerated to a two-year low. The pace of existing-home sales declined during October, as new-home sales climbed impressively to offset September’s plunge. Initial jobless claims contracted steadily over the course of November, following a drop in the unemployment rate to 5.0% in October (the lowest level since October 2008). Average hourly earnings and personal incomes climbed by 0.4% in October, while consumer spending rose by considerably less; core personal consumption expenditures were unchanged year over year. An upward adjustment to inventories helped boost annualized third-quarter economic growth from 1.5% to 2.1%. Fixed investment also contributed, while exports and final sales were revised downward. U.K. retail sales volumes appeared set to hit multi-month lows during November following a decline in the prior month. Industrial growth was also projected to slow in November, as production and orders surveys fell to three-year lows amid falling exports. Manufacturing activity, however, reached a 16-month peak in October as new orders and output climbed. Services activity also improved, but remained below its historical average. Industrial production slid in September, with activity in the energy subsector contributing and mining and quarrying detracting. U.K. home price increases surpassed estimates in October, as available properties remained at a record low. The claimant count unexpectedly gained in October, while the unemployment rate for the period from July to September declined to 5.3% and average year-over-year earnings growth remained at 3%. The U.K. economy advanced 0.5% in the third quarter and 2.3% in the year over year. Fixed capital formation and household spending climbed for the third consecutive period. However, net trade detracted as imports reached a nine-year peak. Eurozone manufacturing and services activity was provisionally stronger than anticipated in November, recording a composite 54-month peak. Both sectors experienced multi-month highs in new business and spikes in backlog orders. Manufacturing output climbed for the twenty-eighth straight month in October, and services activity expanded. Industrial production and retail sales, meanwhile, disappointed in September. Consumer prices rose in both October and over the prior year, with core prices (excluding energy, alcohol, tobacco and food) delivering the largest year-over-year advance since 2013. An early reading of third-quarter eurozone economic activity repeated its second-quarter 0.3% growth rate, while the year-over-year pace accelerated to 1.6%.
© 2015 SEI
1
Market Impact Fixed-income market performance was mostly negative in November, as measured by the Barclays Global Aggregate Index. U.S. dollar-hedged (which seeks to reduce U.S. dollar-related volatility) global non-government debt and sovereign securities were nominally positive, while external emerging-market debt was slightly negative. U.S. mortgage-backed securities, Treasury inflation-protected securities and U.S. asset-backed securities declined modestly, followed by U.S. investment-grade corporate fixed income and U.S. Treasurys. Unhedged global non-government debt and sovereign securities were firmly negative. Local-currency-denominated emerging-market debt was outdone on the downside only by U.S. high-yield debt. Global equity markets, as reflected by the MSCI AC World Index (Net), declined during November. While a majority of country-level performance was negative, there were several bright spots: Hungary, Lebanon and Kazakhstan delivered strong returns, followed by a Northern European trio (Belgium, Denmark and Ireland). Russia and the U.S. also had positive performance. Greece had deeply negative returns, followed at a distance by Colombia and Egypt. Global sectors declined with the exception of information technology and industrials. The financial sector was marginally negative, trailed by healthcare and consumer discretionary. Utilities performed worst, followed by materials, telecommunications, energy and consumer staples. Index Data
The Dow Jones Industrial Average Index advanced by 0.71%. The S&P 500 Index increased by 0.30%. The NASDAQ Composite Index rose by 1.28%. The MSCI AC World Index (Net), used to gauge global equity performance, declined by 0.83%. The Barclays Global Aggregate Index, which represents global bond markets, fell by 1.66%. The Chicago Board Options Exchange Volatility Index, a measure of implied volatility in the S&P 500 Index that is also known as the “fear index”, increased in the month as a whole, moving from 15.07 to 16.13. WTI Cushing crude oil prices, a key indicator of movements in the oil market, moved from $46.59 a barrel at the end of October to $41.65 on the last day in November. The U.S. dollar strengthened against the euro, sterling and yen. The U.S. dollar ended November at $1.06 against the euro, $1.51 versus sterling and at 123.1 yen.
Portfolio Review The U.S. equity market advanced in November, led by smaller companies. The strongest large-cap stock performance came from the financial sector, while small caps were supported by healthcare and technology. Consumer staples lagged among large companies, consumer discretionary underperformed among small companies, and utilities trailed across the capitalization spectrum. Growth-oriented managers tended to outperform value managers amid the continuation of October’s rally, while quantitative managers also lagged. Overseas, the strongest contribution came from exposure to Japan’s consumer sectors. Europe, the Middle East and the U.K. also contributed; stock selection in Europe was additive in aggregate, with positive positioning in France, Ireland, the Netherlands and Switzerland partially offset by holdings Portugal and Belgium. An overweight to Belgium, however, was positive, as was an underweight to Spain. In emerging markets, selection was beneficial in China, Taiwan, Korea and India, but an underweight to Malaysia detracted given its positive absolute performance. Positioning was also positive in Russia, and underweights to Qatar and South Africa enhanced returns. Holdings in Brazil and Mexico also contributed. U.S. Treasury yields rose as the probability for a rate hike at the Fed’s December meeting increased. Short-term yields rose more than long-term yields, benefitting our slightly shorter-duration positioning and yield curve flattening bias. Investor risk aversion abated, enhancing returns as corporate bonds, especially financials, outperformed. An overweight to non-agency mortgage-backed securities (MBS) remained beneficial; however, an underweight to agency MBS detracted from relative performance. The high-yield market remained volatile, nearly erasing October’s gain as the energy sector continued to drive market direction. A defensive posture and cash holdings aided relative performance, along with an underweight to basic industry, an overweight to leisure and selection within consumer goods. Detracting from performance was an allocation to structured credit and selection within retail and telecommunications. Within emerging markets, overweights to Venezuela and Kazakhstan, particularly their state-owned energy companies, were the top contributors to outperformance. Cash holdings were also beneficial as the U.S. dollar strengthened versus most other currencies. Exposure to Colombian local debt was the most significant detractor, followed by an underweight to Malaysian external debt as its state-owned oil company achieved its first exploration successes. © 2015 SEI
2
Manager Positioning and Opportunities SEI’s portfolio managers rely on investment-manager selection and portfolio construction in an effort to deliver diversified sources of excess return for our portfolios. Our U.S. equity positioning continues to reflect the belief that we are in the latter stages of a market expansion, with increased volatility as the markets try to balance firm domestic economic data with external conflicts. We have concluded the trimming of our momentum exposures and seek to normalize this underallocation over the coming quarters. We continue to emphasize deeper value strategies that have elevated exposure to troubled parts of the market given their attractive valuations. Allocations to stability will continue to slowly increase as the expansion matures and valuations remain higher. Internationally, we have slightly increased overweights to information technology and consumer discretionary, while making small reductions to overweights in telecommunication services, healthcare and industrials. Underweights to consumer staples, utilities and financials remain, with a marginal reduction to the former. Within emerging markets, we are overweight Latin America — particularly Mexico, but also Peru. Emerging Asia remains an underweight; we retain an overweight to China and underweights to Korea, Taiwan and Malaysia. We also remain underweight to Europe, the Middle East and Africa, primarily to South Africa, but also to Poland and Qatar. Core fixed income retains a short-to-neutral duration stance with a yield curve flattening bias. After widening during the third quarter, credit spreads narrowed for the second consecutive month and we have been selectively adding back risk. An overweight to corporate credit remains and an underweight to the industrial sector has been reduced. In high yield, we maintain a slightly more defensive posture and will be selective in new purchases given recent volatility. The defensive stance through an allocation to bank loans and cash will remain, especially when bank-loan valuations appear attractive versus BB rated bonds. Default rates, which have been trending higher, remain below historical averages and are likely to remain there ― despite some recent bankruptcy filings in the energy sector ― as long as economic growth remains positive. Within emerging markets, we remain substantially underweight external debt, slightly underweight local-currency debt, and overweight corporates. The largest external-debt positions are in Indonesia, Brazil, Venezuela, Kazakhstan, Mexico, Turkey and Argentina, and we have significant local-bond overweights in Indonesia, Colombia, Russia, India and Poland. Our View We believe the bull market in global equities remains intact; however, its character certainly has changed. As we point out frequently, economic and market cycles in recent years have been disjointed and out of sync from region to region and country to country. Since the beginning of 2015, other equity markets (notably Japan and the countries of the eurozone) have found increased favor among investors. We expect monetary policies in Japan, Europe and the rest of the world to remain far more expansionary and for longer than in the U.S. It’s our strong conviction that developed economies will not only avoid recession but actually step up the pace of growth in the year ahead. If demand flags in those regions, deflationary pressures will probably intensify. Between 2007 and 2014, China’s total debt as a percentage of gross domestic product (GDP) has surged by a remarkable 100 percentage points to 250%. Historically, no developing country has been able to increase debt this quickly, and to such a high level relative to GDP, without suffering a serious hangover. The bursting of the stock-market bubble in China this summer, although severe from a psychological perspective, is something of a sideshow. What really unsettled markets was the Chinese government’s decision to allow its currency to float against the U.S. dollar. Concern is growing that China will let its currency float more freely and cause a sharp depreciation against its major trading partners in the months ahead. We expect that the bull market in the U.S. still has a few of years of life left in it, as share prices rise with underlying profitability. Thus, we viewed the summer’s price correction as a buying opportunity. The Federal Reserve’s decision to stand pat in October suggests that the central bank is not only data-dependent, but also market-dependent. U.K. equity valuations are decidedly unattractive, having been as expensive as they were versus other developed equity markets at the end of the third quarter for only 7% of the time since 1997. In terms of fiscal policy, Europe still remains focused on austerity measures and its need to reduce debt loads in the periphery countries. China could also experience a sharper slowing than expected if the government loses control of the debt unwinding process. Despite the turbulence of recent months, our tactical view remains basically the same. We continue to favor equities over bonds, developed international exposure over the U.S., long-dollar positions against a variety of currencies and a generally pro-cyclical orientation within sectors. © 2015 SEI
3
Benchmark Descriptions The Dow Jones Industrial Average is a widely followed market indicator based on a price-weighted average of 30 bluechip New York Stock Exchange stocks that are selected by editors of The Wall Street Journal. The S&P 500 Index is a capitalization-weighted index made up of 500 widely held U.S. large-cap companies. The NASDAQ Composite Index is a market value-weighted index of all common stocks listed on the National Association of Securities Dealers Automated Quotations (NASDAQ) system. The MSCI All Country World Index is a market capitalization-weighted index composed of over 2,000 companies, representing the market structure of 48 developed and emerging-market countries in North and South America, Europe, Africa and the Pacific Rim. The Index is calculated with net dividends reinvested in U.S. dollars. The MSCI EMU Index (European Economic and Monetary Union) Index is a free float-adjusted market-capitalization weighted index that is designed to measure the equity market performance of countries within EMU. The MSCI EMU Index consists of the following 10 developed-market country indexes: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Netherlands, Portugal and Spain. The Barclays Global Aggregate Bond Index (formerly Lehman Brothers Global Aggregate Index), an unmanaged market capitalization-weighted benchmark, tracks the performance of investment-grade fixed- income securities denominated in 13 currencies. The Index reflects reinvestment of all distributions and changes in market prices. The Chicago Board Options Exchange Volatility Index (VIX) tracks the expected volatility in the S&P 500 Index over the next 30 days. A higher number indicates greater volatility. Disclosures This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the Funds or any stock in particular, nor should it be construed as a recommendation to purchase or sell a security, including futures contracts. There are risks involved with investing, including loss of principal. Current and future portfolio holdings are subject to risks as well. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Narrowly focused investments and smaller companies typically exhibit higher volatility. Bonds and bond funds will decrease in value as interest rates rise. High-yield bonds involve greater risks of default or downgrade and are more volatile than investment-grade securities, due to the speculative nature of their investments. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Diversification may not protect against market risk. There is no assurance the objectives discussed will be met. Past performance does not guarantee future results Index returns are for illustrative purposes only and do not represent actual portfolio performance. Index returns do not reflect any management fees, transaction costs or expenses. One cannot invest directly in an index. Information provided by SEI Investments Management Corporation, a wholly owned subsidiary of SEI Investments Company (SEI). Neither SEI nor its subsidiaries are affiliated with your financial advisor.
© 2015 SEI
4
Heightened geopolitical tensions weighed on investor sentiment amid a lack of monetary policy changes in November. Global equity and fixed-income market returns were mostly negative as the U.S. dollar strengthened. Our tactical view continues to favor equities over bonds, developed international exposure over the U.S., long-dollar positions against a variety of currencies, and a generally pro-cyclical orientation within sectors.
Economic Backdrop Rising geopolitical tensions defined November, as Paris, Beirut and Bamako, Mali were attacked mid-month by religious extremists. Russia also suffered casualties, with the downing of a civilian airliner over Egypt on the last day of October and of a fighter jet by the Turkish military near the Turkey-Syria border in late November. France urged allies to expand their involvement in the U.S.-led air strike coalition targeting Islamic State in Iraq and Syria. The air campaign, in conjunction with a ground offensive led by Kurdish forces, reclaimed lost territory in Northern Iraq. No major monetary policy changes were enacted; although posturing underscored a potentially imminent transatlantic divergence. The U.S. Federal Open Market Committee’s October meeting minutes stated that an interest-rate increase will be under consideration at its next meeting in mid-December; Chair Janet Yellen remarked that a rate hike would be a “live possibility” at that time. The Bank of England held firm amid softened near-term inflation expectations, while minutes from the European Central Bank’s October meeting supported speculation around additional easing following its meeting on 3 December. The Bank of Japan continued its zero-interest-rate policy and asset-purchase program, as third-quarter economic activity crossed into recession territory. The International Monetary Fund’s introduction of China’s renminbi to its Special Drawing Rights basket at the end of November represented a milestone in attaining reserve-currency status. U.S. services sector growth reached a multi-month high in November, according to early projections, while manufacturing growth decelerated to a two-year low. The pace of existing-home sales declined during October, as new-home sales climbed impressively to offset September’s plunge. Initial jobless claims contracted steadily over the course of November, following a drop in the unemployment rate to 5.0% in October (the lowest level since October 2008). Average hourly earnings and personal incomes climbed by 0.4% in October, while consumer spending rose by considerably less; core personal consumption expenditures were unchanged year over year. An upward adjustment to inventories helped boost annualized third-quarter economic growth from 1.5% to 2.1%. Fixed investment also contributed, while exports and final sales were revised downward. U.K. retail sales volumes appeared set to hit multi-month lows during November following a decline in the prior month. Industrial growth was also projected to slow in November, as production and orders surveys fell to three-year lows amid falling exports. Manufacturing activity, however, reached a 16-month peak in October as new orders and output climbed. Services activity also improved, but remained below its historical average. Industrial production slid in September, with activity in the energy subsector contributing and mining and quarrying detracting. U.K. home price increases surpassed estimates in October, as available properties remained at a record low. The claimant count unexpectedly gained in October, while the unemployment rate for the period from July to September declined to 5.3% and average year-over-year earnings growth remained at 3%. The U.K. economy advanced 0.5% in the third quarter and 2.3% in the year over year. Fixed capital formation and household spending climbed for the third consecutive period. However, net trade detracted as imports reached a nine-year peak. Eurozone manufacturing and services activity was provisionally stronger than anticipated in November, recording a composite 54-month peak. Both sectors experienced multi-month highs in new business and spikes in backlog orders. Manufacturing output climbed for the twenty-eighth straight month in October, and services activity expanded. Industrial production and retail sales, meanwhile, disappointed in September. Consumer prices rose in both October and over the prior year, with core prices (excluding energy, alcohol, tobacco and food) delivering the largest year-over-year advance since 2013. An early reading of third-quarter eurozone economic activity repeated its second-quarter 0.3% growth rate, while the year-over-year pace accelerated to 1.6%.
© 2015 SEI
1
Market Impact Fixed-income market performance was mostly negative in November, as measured by the Barclays Global Aggregate Index. U.S. dollar-hedged (which seeks to reduce U.S. dollar-related volatility) global non-government debt and sovereign securities were nominally positive, while external emerging-market debt was slightly negative. U.S. mortgage-backed securities, Treasury inflation-protected securities and U.S. asset-backed securities declined modestly, followed by U.S. investment-grade corporate fixed income and U.S. Treasurys. Unhedged global non-government debt and sovereign securities were firmly negative. Local-currency-denominated emerging-market debt was outdone on the downside only by U.S. high-yield debt. Global equity markets, as reflected by the MSCI AC World Index (Net), declined during November. While a majority of country-level performance was negative, there were several bright spots: Hungary, Lebanon and Kazakhstan delivered strong returns, followed by a Northern European trio (Belgium, Denmark and Ireland). Russia and the U.S. also had positive performance. Greece had deeply negative returns, followed at a distance by Colombia and Egypt. Global sectors declined with the exception of information technology and industrials. The financial sector was marginally negative, trailed by healthcare and consumer discretionary. Utilities performed worst, followed by materials, telecommunications, energy and consumer staples. Index Data
The Dow Jones Industrial Average Index advanced by 0.71%. The S&P 500 Index increased by 0.30%. The NASDAQ Composite Index rose by 1.28%. The MSCI AC World Index (Net), used to gauge global equity performance, declined by 0.83%. The Barclays Global Aggregate Index, which represents global bond markets, fell by 1.66%. The Chicago Board Options Exchange Volatility Index, a measure of implied volatility in the S&P 500 Index that is also known as the “fear index”, increased in the month as a whole, moving from 15.07 to 16.13. WTI Cushing crude oil prices, a key indicator of movements in the oil market, moved from $46.59 a barrel at the end of October to $41.65 on the last day in November. The U.S. dollar strengthened against the euro, sterling and yen. The U.S. dollar ended November at $1.06 against the euro, $1.51 versus sterling and at 123.1 yen.
Portfolio Review The U.S. equity market advanced in November, led by smaller companies. The strongest large-cap stock performance came from the financial sector, while small caps were supported by healthcare and technology. Consumer staples lagged among large companies, consumer discretionary underperformed among small companies, and utilities trailed across the capitalization spectrum. Growth-oriented managers tended to outperform value managers amid the continuation of October’s rally, while quantitative managers also lagged. Overseas, the strongest contribution came from exposure to Japan’s consumer sectors. Europe, the Middle East and the U.K. also contributed; stock selection in Europe was additive in aggregate, with positive positioning in France, Ireland, the Netherlands and Switzerland partially offset by holdings Portugal and Belgium. An overweight to Belgium, however, was positive, as was an underweight to Spain. In emerging markets, selection was beneficial in China, Taiwan, Korea and India, but an underweight to Malaysia detracted given its positive absolute performance. Positioning was also positive in Russia, and underweights to Qatar and South Africa enhanced returns. Holdings in Brazil and Mexico also contributed. U.S. Treasury yields rose as the probability for a rate hike at the Fed’s December meeting increased. Short-term yields rose more than long-term yields, benefitting our slightly shorter-duration positioning and yield curve flattening bias. Investor risk aversion abated, enhancing returns as corporate bonds, especially financials, outperformed. An overweight to non-agency mortgage-backed securities (MBS) remained beneficial; however, an underweight to agency MBS detracted from relative performance. The high-yield market remained volatile, nearly erasing October’s gain as the energy sector continued to drive market direction. A defensive posture and cash holdings aided relative performance, along with an underweight to basic industry, an overweight to leisure and selection within consumer goods. Detracting from performance was an allocation to structured credit and selection within retail and telecommunications. Within emerging markets, overweights to Venezuela and Kazakhstan, particularly their state-owned energy companies, were the top contributors to outperformance. Cash holdings were also beneficial as the U.S. dollar strengthened versus most other currencies. Exposure to Colombian local debt was the most significant detractor, followed by an underweight to Malaysian external debt as its state-owned oil company achieved its first exploration successes. © 2015 SEI
2
Manager Positioning and Opportunities SEI’s portfolio managers rely on investment-manager selection and portfolio construction in an effort to deliver diversified sources of excess return for our portfolios. Our U.S. equity positioning continues to reflect the belief that we are in the latter stages of a market expansion, with increased volatility as the markets try to balance firm domestic economic data with external conflicts. We have concluded the trimming of our momentum exposures and seek to normalize this underallocation over the coming quarters. We continue to emphasize deeper value strategies that have elevated exposure to troubled parts of the market given their attractive valuations. Allocations to stability will continue to slowly increase as the expansion matures and valuations remain higher. Internationally, we have slightly increased overweights to information technology and consumer discretionary, while making small reductions to overweights in telecommunication services, healthcare and industrials. Underweights to consumer staples, utilities and financials remain, with a marginal reduction to the former. Within emerging markets, we are overweight Latin America — particularly Mexico, but also Peru. Emerging Asia remains an underweight; we retain an overweight to China and underweights to Korea, Taiwan and Malaysia. We also remain underweight to Europe, the Middle East and Africa, primarily to South Africa, but also to Poland and Qatar. Core fixed income retains a short-to-neutral duration stance with a yield curve flattening bias. After widening during the third quarter, credit spreads narrowed for the second consecutive month and we have been selectively adding back risk. An overweight to corporate credit remains and an underweight to the industrial sector has been reduced. In high yield, we maintain a slightly more defensive posture and will be selective in new purchases given recent volatility. The defensive stance through an allocation to bank loans and cash will remain, especially when bank-loan valuations appear attractive versus BB rated bonds. Default rates, which have been trending higher, remain below historical averages and are likely to remain there ― despite some recent bankruptcy filings in the energy sector ― as long as economic growth remains positive. Within emerging markets, we remain substantially underweight external debt, slightly underweight local-currency debt, and overweight corporates. The largest external-debt positions are in Indonesia, Brazil, Venezuela, Kazakhstan, Mexico, Turkey and Argentina, and we have significant local-bond overweights in Indonesia, Colombia, Russia, India and Poland. Our View We believe the bull market in global equities remains intact; however, its character certainly has changed. As we point out frequently, economic and market cycles in recent years have been disjointed and out of sync from region to region and country to country. Since the beginning of 2015, other equity markets (notably Japan and the countries of the eurozone) have found increased favor among investors. We expect monetary policies in Japan, Europe and the rest of the world to remain far more expansionary and for longer than in the U.S. It’s our strong conviction that developed economies will not only avoid recession but actually step up the pace of growth in the year ahead. If demand flags in those regions, deflationary pressures will probably intensify. Between 2007 and 2014, China’s total debt as a percentage of gross domestic product (GDP) has surged by a remarkable 100 percentage points to 250%. Historically, no developing country has been able to increase debt this quickly, and to such a high level relative to GDP, without suffering a serious hangover. The bursting of the stock-market bubble in China this summer, although severe from a psychological perspective, is something of a sideshow. What really unsettled markets was the Chinese government’s decision to allow its currency to float against the U.S. dollar. Concern is growing that China will let its currency float more freely and cause a sharp depreciation against its major trading partners in the months ahead. We expect that the bull market in the U.S. still has a few of years of life left in it, as share prices rise with underlying profitability. Thus, we viewed the summer’s price correction as a buying opportunity. The Federal Reserve’s decision to stand pat in October suggests that the central bank is not only data-dependent, but also market-dependent. U.K. equity valuations are decidedly unattractive, having been as expensive as they were versus other developed equity markets at the end of the third quarter for only 7% of the time since 1997. In terms of fiscal policy, Europe still remains focused on austerity measures and its need to reduce debt loads in the periphery countries. China could also experience a sharper slowing than expected if the government loses control of the debt unwinding process. Despite the turbulence of recent months, our tactical view remains basically the same. We continue to favor equities over bonds, developed international exposure over the U.S., long-dollar positions against a variety of currencies and a generally pro-cyclical orientation within sectors. © 2015 SEI
3
Benchmark Descriptions The Dow Jones Industrial Average is a widely followed market indicator based on a price-weighted average of 30 bluechip New York Stock Exchange stocks that are selected by editors of The Wall Street Journal. The S&P 500 Index is a capitalization-weighted index made up of 500 widely held U.S. large-cap companies. The NASDAQ Composite Index is a market value-weighted index of all common stocks listed on the National Association of Securities Dealers Automated Quotations (NASDAQ) system. The MSCI All Country World Index is a market capitalization-weighted index composed of over 2,000 companies, representing the market structure of 48 developed and emerging-market countries in North and South America, Europe, Africa and the Pacific Rim. The Index is calculated with net dividends reinvested in U.S. dollars. The MSCI EMU Index (European Economic and Monetary Union) Index is a free float-adjusted market-capitalization weighted index that is designed to measure the equity market performance of countries within EMU. The MSCI EMU Index consists of the following 10 developed-market country indexes: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Netherlands, Portugal and Spain. The Barclays Global Aggregate Bond Index (formerly Lehman Brothers Global Aggregate Index), an unmanaged market capitalization-weighted benchmark, tracks the performance of investment-grade fixed- income securities denominated in 13 currencies. The Index reflects reinvestment of all distributions and changes in market prices. The Chicago Board Options Exchange Volatility Index (VIX) tracks the expected volatility in the S&P 500 Index over the next 30 days. A higher number indicates greater volatility. Disclosures This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the Funds or any stock in particular, nor should it be construed as a recommendation to purchase or sell a security, including futures contracts. There are risks involved with investing, including loss of principal. Current and future portfolio holdings are subject to risks as well. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Narrowly focused investments and smaller companies typically exhibit higher volatility. Bonds and bond funds will decrease in value as interest rates rise. High-yield bonds involve greater risks of default or downgrade and are more volatile than investment-grade securities, due to the speculative nature of their investments. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Diversification may not protect against market risk. There is no assurance the objectives discussed will be met. Past performance does not guarantee future results Index returns are for illustrative purposes only and do not represent actual portfolio performance. Index returns do not reflect any management fees, transaction costs or expenses. One cannot invest directly in an index. Information provided by SEI Investments Management Corporation, a wholly owned subsidiary of SEI Investments Company (SEI). Neither SEI nor its subsidiaries are affiliated with your financial advisor.
© 2015 SEI
4
