Knowledge Centre

Knowledge Centre Archive


Annual Market Update to 31 March 2012

The 12 months ending in March can be characterised as a year of two halves. Risk avoidance was a key theme throughout the first six months of period and consequently defensive assets, particularly government bonds, were favoured during this time. Investor sentiment and the markets experienced a reversal during the final six months of the year and assets that are perceived to be riskier rallied.

The first half of the year witnessed a continuation of the sovereign debt crisis in the eurozone, political turmoil in North Africa and the Middle East, an earthquake and tsunami in Japan and growing fears about the high level of U.S. debt. In contrast, the second half of the year was characterised by stronger economic releases from the U.S., measures by the European Central Bank (ECB) to support the banking system and progress towards resolving Greece’s sovereign debt troubles.

  • The Barclays Capital Global Aggregate Index, which represents global bond markets, gained ($) 5.26% over the year.

Bonds were favoured over equities throughout the year, but notably so during the more turbulent first six months of the period. In this time, investors shied away from risk and in a reflection of this “flight-to-safety”, global government bonds performed best. However, as market volatility calmed in the latter part of the year, global government bonds began to fall out of favour and riskier fixed income investments - emerging market and high yield debt - gained in their place. For the year as a whole emerging market fixed income assets performed best and global government bonds trailed slightly.

  • The MSCI AC World Index, used to gauge global equity performance, fell by ($) 0.73% in the period.

Global equity markets faltered in the first six months of the year and rallied strongly during the final six months. Uncertainty led to elevated volatility in the markets during the first half of the period, which peaked during early August, when stock markets across Europe experienced their biggest one-day losses since 2008. All sectors struggled during this time, but more defensive areas of the market, such as Consumer Staples, fared marginally better. Optimism returned during the latter part of the year as central bank support fostered a more upbeat mood. Consequently, volatility declined and correlations fell sharply such that stocks no longer all moved together. Valuations in the equity markets ended the period more in line with company fundamentals. In this environment, investors favoured riskier assets and cyclical sectors performed well. However, for the one year as a whole, Consumer Staples, Information Technology and Healthcare performed best, while Materials, Energy and Financials lagged.

Our View

We are neutral on equities versus bonds. Although we believe equities are likely to experience a period of pullback and consolidation in the months ahead, we do not expect a severe reversal like the one experienced last year. SEI believes that U.S. economic expansion is finally on firmer ground. The improvement in the financial position of U.S. households and the recovery in employment should give investors confidence that U.S. economic expansion will be sustained.

We favour U.S. versus international equities. The U.S. certainly looks like the best house in a bad neighbourhood. Although the eurozone has made some progress in dealing with its debt crisis, it will continue to face periods of stress. Growth in the strongest countries is likely to trail the U.S., while the problem debtors continue to face austerity-induced economic decline. Eurozone exporters may benefit if the euro declines as we expect. Emerging markets will likely continue to grow at a faster clip than the U.S. but, China, India and Brazil all have issues that lessen their near-term attractiveness.

We favour high yield debt versus investment grade fixed income. The financial health of high yield debt issuers suggests that this asset class should continue to outperform treasuries and investment grade bonds.

Glossary of Financial Terms

  • High yield debt: High yield debt is rated below investment grade and is considered to be riskier.
  • Fundamentals: Fundamentals refers to data that can be used to assess a country or company's financial health such as amount of debt, level of profitability, cash-flow, inventory size etc.
  • Cyclical sectors or stocks: Cyclical sectors or stocks are those whose performance is closely tied to the economic environment and business cycle.
  • Austerity: Austerity refers to measures taken by a country’s government in an effort to reduce expenditures and a budget deficit.


Important Information:

Past performance is not a guarantee of future performance.
Investment in the range of SEI’s Funds is intended as a long-term investment. The value of an investment and any income from it can go down as well as up. Investors may not get back the original amount invested. Additionally, this investment may not be suitable for everyone. If you should have any doubt whether it is suitable for you, you should obtain expert advice.

No offer of any security is made hereby. Recipients of this information who intend to apply for shares in any SEI Fund are reminded that any such application may be made solely on the basis of the information contained in the Prospectus. 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.

If the investment is withdrawn in the early years it may not return the full amount invested. In addition to the normal risks associated with equity investing, international investments may involve risk of capital loss from unfavourable 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. SEI Funds may use derivative instruments such as futures, forwards, options, swaps, contracts for differences, credit derivatives, caps, floors and currency forward contracts. These instruments may be used for hedging purposes and/or investment purposes.

While considerable care has been taken to ensure the information contained within this document is accurate and up-to-date, no warranty is given as to the accuracy or completeness of any information and no liability is accepted for any errors or omissions in such information or any action taken on the basis of this information.

This information is approved, issued, and distributed by SEI Investments (Europe) Limited, 4th Floor, Time & Life Building, 1 Bruton Street, London W1J 6TL which is authorised and regulated by the Financial Services Authority. Please refer to our latest Full Prospectus (which includes information in relation to the use of derivatives and the risks associated with the use of derivative instruments), Simplified Prospectus and latest Annual or Interim Short Reports for more information on our funds. This information can be obtained by contacting your Financial Advisor or using the contact details shown above.

SEI sources data directly from the following vendors: Factset, MSCI Barra, Russell, TOPIX, FTSE, Barclays Capital and BofA Merrill Lynch. Where appropriate, returns in base currencies are converted to the relevant currency using WM Reuters 4pm Spot rates.