Practice Management Update First Quarter 2001 April 17, 2001 SEI Advisor Network
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Transcript of Practice Management Update First Quarter 2001 April 17, 2001 SEI Advisor Network
Practice Management UpdateFirst Quarter 2001
April 17, 2001SEI Advisor Network
• 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
Today’s Agenda
11stst-Quarter Market Conditions-Quarter Market ConditionsValidate Validate SEISEI’s’s Investment Management ApproachInvestment 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 Tax-
Managed Large Cap Fund
Talking Points - I
Talking Points - II11st-st-Quarter Tracking Errors Were Negative and Quarter Tracking Errors Were Negative and
Sometimes Larger Than ExpectedSometimes 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 OverviewFirst 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.
• 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
• If this trend continues, the market bloodletting may soon be over
• Bear markets don’t last forever, they just feel like they do!
Expansion Start Date
Upturn in S&P 500 Lead Time
May 1954 Sep 1953 8 months
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
Average Lead Time: 4.3 months
Economic and Financial Prospects
Equity Markets Crumbled
75%
100%
125%
150%
175%
200%
225%
250%
99 00 01
DJIA Nasdaq Wilshire 5000
Returns Performance of the Dow, the Nasdaq and the Wilshire 5000Returns Performance of the Dow, the Nasdaq and the Wilshire 50001999 to 2001 Q11999 to 2001 Q1
Note: All indexes set to 100 on January 2, 1999
Diversification Proves Its Value
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
Nasdaq Int'l Stocks Wilshire5000
EmergingMarketStocks
Int'l FixedIncome
EmergingMarketDebt
MunicipalBonds
US FixedIncome
High YieldBonds
First Quarter Returns of Selected Asset Classes and Market IndicesFirst Quarter Returns of Selected Asset Classes and Market Indices
SEI Portfolio Performance: Annual Returns2001 Q1 2000 1999 1997
Note: Index Blended Benchmarks are gross returns, while SEI specific portfolios are net returns. Outperformance in BOLD.
Active Tax-Managed (ATM) 60
Active Tax-Managed (ATM) 100Index Blended Benchmark
Index Blended Benchmark
TAX-MANAGED-6.86-6.45
-12.23-11.60
-14.45-11.16
17.2616.41
28.1126.12
Institutional Growth & Income (60 / 40) -7.58Index Blended Benchmark -6.78
Institutional Equity (100) -13.63Index Blended Benchmark -12.31
INSTITUTIONAL-4.40-4.97
-12.43-12.64
14.0513.38
20.8519.52
Domestic Equity (100) -14.53Index Blended Benchmark -12.80
Global Equity (100) -14.39Index Blended Benchmark -12.99
-7.48-9.82
-9.58-10.80
20.4719.95
24.2121.40
33.1930.91
25.5724.70
DOMESTIC
GLOBAL
1998
11.8813.34
14.1116.32
20.5121.52
20.3721.24
-6.65-4.64
17.3615.74
28.6825.60
SEI Portfolio Performance: Rolling Returns2001 Q1 1 Year 3 Year 5 Year
Active Tax-Managed (ATM) 60
Active Tax-Managed (ATM) 100Index Blended Benchmark
Index Blended Benchmark
TAX-MANAGED-14.69-13.07
-26.38-24.22
1.872.61
-0.210.80
Institutional Growth & Income (60 / 40)Index Blended Benchmark
Institutional Equity (100)Index Blended Benchmark
INSTITUTIONAL-14.42-13.74
-27.05-26.02
2.262.47
-0.49-0.18
7.757.58
8.538.28
-24.38-24.69
-25.49-25.02
0.550.65
0.680.43
12.0811.62
10.569.99
DOMESTIC
2 Year
-0.190.82
-3.75-2.22
0.930.46
-3.05-3.58
-3.76-4.04
-3.29-3.96
-6.86-6.45
-12.23-11.60
-7.58-6.78
-13.63-12.31
-14.53-12.80
-14.39-12.99
Domestic Equity (100)Index Blended Benchmark
Global Equity (100)Index Blended Benchmark
GLOBAL
Note: Index Blended Benchmarks are gross returns, while SEI specific portfolios are net returns. Outperformance in BOLD.
Relative Return vs R 1000 G
-6%
-4%
-2%
0%
2%
4%
6%
97Q
197
Q2
97Q
397
Q4
98Q
198
Q2
98Q
398
Q4
99Q
199
Q2
99Q
399
Q4
00Q
100
Q2
00Q
300
Q4
01Q
1
US Large Cap Growth FundThe Biggest Decliner Last Quarter The Biggest Decliner Last Quarter
• 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:
• 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.
• 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.
01Q1 2000 1999 1998 1997SEI Large Growth -24.84% -19.41% 34.20% 38.80% 34.76%
R1000 Growth -20.90% -22.42% 33.16% 38.71% 30.49%
Net contribution -3.94% 3.01% 1.04% 0.09% 4.27%
Fund Performance
Only 9 of 238 growth funds beat the benchmark every
year between ‘97 and ’00. SEI is in this top 4%
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
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%
Holds True for 2000, Too SEI vs. Morningstar “Five Star” Funds
Year 2000 Performance
SEI Five Star Alpha
Intermediate-Term Municipal 8.53% 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
Fund Performance
Changes Paying OffChanges Paying Off
• Fund produces superior long-term results
• 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)
• 36th percentile return 14th percentile tracking error
01Q1 2000 1999 1998 1997SEI 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%
Oeschle InternationalNon-US Growth
Capital GuardianNon-US GARP
AcadianNon-US Value
BlackRockEurope Martin Currie
Japan Value
Jardine FlemingPacific Growth
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
Fund Performance
01Q1 2000 1999 1998 1997SEI EM Equity -6.37% -34.47% 70.31% -31.95% -9.12%
MSCI EMF -5.46% -30.61% 66.41% -25.33% -11.58%
Net contribution -0.91% -3.86% 3.90% -6.62% 2.46%
Reconstruction CompleteReconstruction Complete
ProblemProblem CorrectionCorrection• Difficulty accessing local Gained permission to
stocks in Taiwan and India trade locally in Taiwan. limited our liquidity and Using equity-linked raised volatility warrants in India
• Lacking Middle East Added Schroder specialty manager
• Overweight in growth stocks Added Boston Co. beat the benchmark by 4% in first quarter.
Market Displays Different Risk/Reward Profile Market Displays Different Risk/Reward Profile
• Recognize that emerging market funds experience larger tracking errors because annual returns are more volatile
SchroderGlobal Core
Nicholas ApplegateGlobal Growth
SGYAsia
MorganStanley
LatinAmerica
SchroderEMEA
The Boston CompanyGlobal Value
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
Fund Performance
AllianceCore
Growth
ProvidentHyper Growth
Major Structural Enhancements Major Structural Enhancements
Parametric• 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• Superior long-term growth performance
LSV to come online May 2001 (pending Board approval)
• Superior performance achieved with contrarian value stocks
ParametricCore Tax-Managed
EquinoxRelative
Value
Sanford Bernstein
Deep Value
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% 2.16%
PeregrineLong-term
Growth
LSVContrarian
Value
* Pre-tax returns for SEI Tax-Managed Large Cap Fund # Returns from Fund inception in March 1998
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 Strong Manager Line-Up
• 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
• Bernstein: + 20% one-year return• LSV: + 17% one-year return
• Deutsche has replaced Mellon
01Q1 2000 1999 1998 1997SEI Large Value -4.47% 5.74% 4.93% 11.35% 36.74%
R1000 Value -5.86% 7.01% 7.34% 15.63% 35.19%
Net contribution 1.39% -1.27% -2.41% -4.28% 1.55%
DeutscheValue
LSVContrarian
Value
Sanford Bernstein
Deep Value
IridianRelative
Value
Fund Performance
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.
• 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.
What to Expect From SEI Going Forward
• 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.
How to Communicate Performance to Clients
• 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:
• 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
For More Information . . .