Transcript SEI 1st Quarter Practice Management Teleconference

Practice Management Update
First Quarter 2001
April 17, 2001
SEI Advisor Network
Today’s Agenda
•
Market and SEI Performance Overview for 1st Qtr
•
Recent Enhancements to SEI’s Implementation
Strategy
•
Expectations Going Forward
•
Presentation of 2nd Qtr Advisor Tool Kit
•
Questions & Answers
Talking Points - I
1st-Quarter Market Conditions
Validate SEI’s Investment Management Approach
Diversification
•
•
Portfolios benefited from diversification into bonds
Equity funds benefited from diversification into value stocks
Strong Managers
•
•
Disciplined managers, each with a targeted sub-style
Long-term performance, e.g. Sanford Bernstein, LSV, Cap Guardian
SEI’s Active Management of Managers
•
•
Moved from Mellon to Deutsche in Large Cap Value Fund
Moved from Mellon to Parametric, and Addition of Peregrine, in TaxManaged Large Cap Fund
Talking Points - II
1st-Quarter Tracking Errors Were Negative and
Sometimes Larger Than Expected
•
SEI is closely monitoring the performance of all managers in
this bear market.
•
Large, negative tracking errors have happened before. In the
past, negative deviations were reversed in subsequent
quarters.
•
•
For example, the Large Cap Growth Fund under-performed by more than
two percentage points in the 3rd quarter 1998, only to be followed by two
consecutive quarters of 2% out-performance.
We are confident that the 1st quarter deviations do not signal
fundamental problems with our managers or our portfolios,
and do not put at risk our long-term performance.
Market and Performance Overview
First Quarter 2001
Economic and Financial Review
Poor market fundamentals and deteriorating
economic situation during the first quarter were due to:
•
•
•
•
Higher oil prices
Tight monetary policy during 2000
Overcapacity in technology sector
Shaken consumer confidence
It’s surprising that the economy held up as well as it did,
even as the markets did not.
Economic and Financial Prospects
•
The US economy is on its own these next few months
•
Benefits of lower interest rates and tax cuts are expected by Q-4
•
Consumers will support the economy in second and third quarters
•
Stocks historically anticipate
economic shifts by 4 to 5 months
Expansion
Start Date
Upturn in
S&P 500
Lead Time
May 1954
Sep 1953
8 months
If this trend continues, the
market bloodletting may
soon be over
April 1958
Dec 1957
4 months
Feb 1961
Oct 1960
4 months
Nov 1970
July 1970
4 months
Mar 1975
Dec 1974
3 months
July 1980
April 1980
3 months
Nov 1982
Aug 1982
3 months
Mar 1991
Oct 1990
5 months
•
•
Bear markets don’t last forever,
they just feel like they do!
Average Lead Time: 4.3 months
Equity Markets Crumbled
Returns Performance of the Dow, the Nasdaq and the Wilshire 5000
1999 to 2001 Q1
250%
225%
200%
175%
150%
125%
100%
75%
99
00
DJIA
Note: All indexes set to 100 on January 2, 1999
Nasdaq
01
Wilshire 5000
Diversification Proves Its Value
First Quarter Returns of Selected Asset Classes and Market Indices
10%
5%
0%
-5%
-10%
-15%
-20%
-25%
-30%
Nasdaq
Int'l Stocks
Wilshire
5000
Emerging
Market
Stocks
Int'l Fixed
Income
Emerging
Market
Debt
Municipal
Bonds
US Fixed
Income
High Yield
Bonds
SEI Portfolio Performance: Annual Returns
2001 Q1
2000
1999
Active Tax-Managed (ATM) 60
Index Blended Benchmark
-6.86
-6.45
-6.65
-4.64
17.26
16.41
Active Tax-Managed (ATM) 100
-12.23
-11.60
-14.45
-11.16
28.11
26.12
-7.58
-6.78
-4.40
-4.97
Institutional Equity (100)
Index Blended Benchmark
-13.63
-12.31
DOMESTIC
Domestic Equity (100)
Index Blended Benchmark
GLOBAL
Global Equity (100)
Index Blended Benchmark
TAX-MANAGED
Index Blended Benchmark
1998
1997
17.36
15.74
11.88
13.34
14.05
13.38
-12.43
-12.64
28.68
25.60
14.11
16.32
20.85
19.52
-14.53
-12.80
-7.48
-9.82
20.47
19.95
20.51
21.52
33.19
30.91
-14.39
-12.99
-9.58
-10.80
24.21
21.40
20.37
21.24
25.57
24.70
INSTITUTIONAL
Institutional Growth & Income (60 / 40)
Index Blended Benchmark
Note: Index Blended Benchmarks are gross returns, while SEI specific portfolios are net returns. Outperformance in BOLD.
SEI Portfolio Performance: Rolling Returns
2001 Q1
1 Year
2 Year
3 Year
Active Tax-Managed (ATM) 60
Index Blended Benchmark
-6.86
-6.45
-14.69
-13.07
-0.19
0.82
1.87
2.61
Active Tax-Managed (ATM) 100
-12.23
-11.60
-26.38
-24.22
-3.75
-2.22
-0.21
0.80
-7.58
-6.78
-14.42
-13.74
0.93
0.46
2.26
2.47
7.75
7.58
Institutional Equity (100)
Index Blended Benchmark
-13.63
-12.31
-27.05
-26.02
-3.05
-3.58
-0.49
-0.18
8.53
8.28
DOMESTIC
Domestic Equity (100)
Index Blended Benchmark
-14.53
-12.80
-24.38
-24.69
-3.76
-4.04
0.55
0.65
12.08
11.62
GLOBAL
Global Equity (100)
Index Blended Benchmark
-14.39
-12.99
-25.49
-25.02
-3.29
-3.96
0.68
0.43
10.56
9.99
TAX-MANAGED
Index Blended Benchmark
5 Year
INSTITUTIONAL
Institutional Growth & Income (60 / 40)
Index Blended Benchmark
Note: Index Blended Benchmarks are gross returns, while SEI specific portfolios are net returns. Outperformance in BOLD.
US Large Cap Growth Fund
The Biggest Decliner Last Quarter
Relative Return vs R 1000 G
6%
•
The bear market took a toll on growth stocks. SEI Large
Cap Growth Fund lost 24.8%.
•
SEI underperformed the Russell 1000 Growth Index by
3.9%, The causes:
4%
2%
0%
•
-2%
•
-4%
Downturn of high-quality stocks such as EMC and
Cisco
Rebound of some high-risk Internet and PC stocks
that our managers shun for lack of strong
fundamentals.
97Q1
97Q2
97Q3
97Q4
98Q1
98Q2
98Q3
98Q4
99Q1
99Q2
99Q3
99Q4
00Q1
00Q2
00Q3
00Q4
01Q1
-6%
•
Bad quarters have occurred in the past and are the
norm. We underperformed during two quarters of each
of the last four calendar years, and went on to beat the
index each of those years.
Fund Performance
01Q1
2000
1999
1998
1997
SEI Large Growth -24.84% -19.41% 34.20% 38.80% 34.76%
R1000 Growth
Net contribution
-20.90% -22.42% 33.16% 38.71% 30.49%
-3.94%
3.01%
1.04%
0.09%
4.27%
Only 9 of 238 growth funds
beat the benchmark every
year between ‘97 and ’00.
SEI is in this top 4%
Who Better than SEI?
SEI vs. Morningstar “Five Star” Funds
1st Quarter 2001 Performance
SEI
Five Star
Alpha
Intermediate-Term Municipal
2.30%
2.31%
-0.01%
Intermediate-Term Taxable
3.14%
3.15%
-0.01%
Domestic Equity Portfolio
-14.70%
-20.46% +5.76%
Foreign Stock
-13.70% -16.36%
+2.66%
Source: Morningstar
SEI Domestic Equity portfolio is a combination of 4 funds: Large Growth, Large Value, Small Growth & Small Value
Morningstar Five Star Managers as of 12/31/99
Holds True for 2000, Too
SEI vs. Morningstar “Five Star” Funds
Year 2000 Performance
SEI
Intermediate-Term Municipal
8.53%
Five Star
Alpha
4.98% +3.55%
Intermediate-Term Taxable
12.52%
8.52%
+4.00%
Domestic Equity Portfolio
-7.48%
-13.68%
+6.20%
Foreign Stock
-17.74% -18.21%
+0.47%
Source: Morningstar
SEI Domestic Equity portfolio is a combination of 4 funds: Large Growth, Large Value, Small Growth & Small Value
Morningstar Five Star Managers as of 12/31/99
Review of Recent Portfolio
Enhancements
International Equity Fund
Changes Paying Off
Oeschle International
Non-US Growth
•
Capital Guardian
Fund produces superior long-term results
•
Non-US GARP
•
•
Acadian
Non-US Value
BlackRock
Jardine Fleming
Pacific Growth
Europe
•
For the three-year period ending 2000, the Fund
outperformed its EAFE benchmark by 1.7%.
In line with benchmark in 1st quarter.
Good stock selection within the technology
sector boosted results
Fund outperforms peer group with lower than
average risk (1st percentile is best on both measures)
•
Martin Currie
36th percentile return
14th percentile tracking error
Japan Value
Fund Performance
01Q1
2000
1999
1998
1997
SEI Intl Equity
-13.70% -17.74% 39.63% 19.29%
-1.86%
MSCI EAFE
-13.73% -14.17% 26.96% 20.00%
1.78%
Net contribution
0.03%
-3.57% 12.67%
-0.71%
-3.64%
SEI has prepared an article on
the International Fund for use
with your clients. Download the
article at www.seic.com/iag
Emerging Market Equity Fund
Reconstruction Complete
Nicholas Applegate
Global Growth
Problem
Correction
•
Difficulty accessing local
stocks in Taiwan and India
limited our liquidity and
raised volatility
Gained permission to
trade locally in Taiwan.
Using equity-linked
warrants in India
•
Lacking Middle East
specialty manager
Added Schroder
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Overweight in growth stocks
Added Boston Co.
beat the benchmark
by 4% in first quarter.
Schroder
Global Core
The Boston Company
Global Value
Morgan
Stanley Schroder
Latin
EMEA
America
SGY
Asia
Market Displays Different Risk/Reward Profile
•
Fund Performance
01Q1
2000
1999
Recognize that emerging market funds experience
larger tracking errors because annual returns are
more volatile
1998
1997
SEI EM Equity
-6.37% -34.47% 70.31% -31.95%
MSCI EMF
-5.46% -30.61% 66.41% -25.33% -11.58%
Net contribution -0.91%
-3.86%
3.90%
-6.62%
-9.12%
2.46%
The addition of Nicholas
Applegate and The Boston
Company reflect the increased
importance of investment style
in the emerging markets.
US Tax-Managed Large Cap Fund
Major Structural Enhancements
Parametric
•
Parametric
Core Tax-Managed
Sanford
LSV
Equinox Peregrine Alliance Provident
Bernstein Contrarian Relative Long-term
Core
Hyper
Deep
Value
Value
Value
Growth
Growth
Growth
Parametric capitalizes on “loss harvesting”
opportunities created in this difficult market.
•
Fund has harvested a net realized loss
exceeding $180 million as of 3/31/01,
enhancing current after-tax returns.
•
Losses will be carried forward to
support future performance
Peregrine
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Superior long-term growth performance
LSV to come online May 2001
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Fund Performance
01Q1
2000
1999
1998#
SEI TM Large*
-13.13% -12.42% 18.48% 19.85%
R1000
-12.57% -7.79% 20.91% 17.69%
Net contribution -0.56% -4.63% -2.43%
* Pre-tax returns for SEI Tax-Managed Large Cap Fund
# Returns from Fund inception in March 1998
2.16%
(pending Board approval)
Superior performance achieved with
contrarian value stocks
SEI has prepared an article on
Parametric for use with your clients.
Download the article at
www.seic.com/iag
US Large Cap Value Fund
Strong Manager Line-Up
Deutsche
Value
Iridian
Sanford
Bernstein
Deep Value
Relative
Value
LSV
•
Fund posted 3.9% absolute return over last 12
months.
•
Outperformed benchmark by 1.4% in 1st quarter,
by 3.7% over last 12 months.
•
Specialist value managers are driving Fund’s
superior returns
Contrarian
Value
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•
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Bernstein:
LSV:
+ 20% one-year return
+ 17% one-year return
Deutsche has replaced Mellon
Fund Performance
01Q1
2000
1999
SEI Large Value -4.47%
5.74%
4.93% 11.35% 36.74%
R1000 Value
7.01%
7.34% 15.63% 35.19%
-5.86%
1998
Net contribution 1.39% -1.27% -2.41% -4.28%
1997
1.55%
SEI will soon release a white
paper providing a detailed
description of the Fund and the
benefits of adding Deutsche as
the core value manager
Going Forward
Important to Keep In Mind…
•
Predicting market highs and lows is very difficult.
•
Bear markets do not last forever.
•
Recovery can be swift.
•
Investors who are sitting on the sidelines run the risk
of missing the rebound.
•
Over time, equities outperform all other classes.
What to Expect From SEI Going Forward
•
SEI’s diversified portfolios will cushion
further deterioration and allow early
participation in rallies.
•
Because SEI portfolios are diversified
geographically and across asset classes, we
expect to benefit from strong performance
wherever in the world it occurs.
•
We are confident that tracking error will
revert to norm within the next two quarters.
How to Communicate Performance to Clients
•
Enhance Client’s Understanding of the Nature of
Business and Market Cycles.
•
Focus on Client’s Investment Goals and Progress
Towards These Goals.
•
Confirm That They’re Still On Track to Meet Their
Objectives.
•
Reiterate the Value of SEI’s Investment Strategy in
Ultimately Reaching Their Goals.
•
Use the Updated Advisor Tool Kit to Communicate
1st Qtr Performance.
For More Information . . .
•
SEI has prepared a variety of articles to help you communicate
the themes we discussed to your clients
•
You may access these articles on the SEI client website at
www.seic.com/iag
•
Current articles include discussions on the following:
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•
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The recent performance of the Large Cap Growth Fund
The new Core-Tax Managed manager Parametric
Spotlight on the International Equity Fund
Keeping the Bear Market in perspective
Many more to come