Knowledge Center Archive


July 2011 Market and Performance Update

By SEI Investment Management Unit

  • Investors favored defensive assets in the equity markets.
  • Global bond yields fell in response to growth concerns and eurozone debt fears.
  • Economic indicators generally disappointed, but SEI remains optimistic in the longer term.

Global equity and bond markets experienced a volatile July. The markets witnessed a general flight to safety, with investors shying away from risk in favor of defensive assets. In this environment, equities in general sold off, and fixed income—particularly government bonds—benefited. Market sentiment was driven by fears that the global economy could be pushed back into recession. Continued problems in the eurozone and ongoing U.S. debt issues along with weak economic data releases fueled concerns for the month.

Economic Recap

Troubles in the eurozone again made headlines in July. Results of the annual European bank stress tests, which are designed to show how banks would cope if there was another financial crisis, had a limited impact in terms of easing negative market sentiment. Despite largely positive results—only nine of the 91 banks under scrutiny failed—concerns that the test parameters were not strict enough muted the good news.

In an effort to stem the panic surrounding the eurozone’s sovereign debt crisis, another, wider-ranging bailout package was agreed on July 21. The deal largely pertained to Greece, but also granted the European Financial Stability Fund (EFSF) permission to buy Spanish and Italian bonds in order to help provide credit to these countries. Under the terms of the new agreement, Greece is to receive a further €109 billion and, along with Ireland and Portugal, will be allowed to reduce repayment levels on existing loans and extend repayment deadlines. At the same time, private-sector companies were encouraged to offer Greece more flexible repayment options on its debt.

Adding to investor unease was the ongoing, and by month-end still unfinished, U.S. debt ceiling debate. The debt ceiling reflects the maximum amount of money that the U.S. government is allowed to borrow. Once the limit is reached, the government cannot borrow any more money and will fail to pay its bills, opening up the potential for the country to default on its debt obligations. Despite market expectations for a resolution prior to the August 2 deadline—the point at which the nation would reach the $14.3 trillion debt limit—political wrangling and the threat of a credit-rating downgrade (whereby longer-term U.S. debt would lose its prized AAA status, which represents the safest debt classification) created a degree of uncertainty and helped to fuel the flight to safety witnessed during the month.

Weak economic data releases further rattled investors. Second-quarter gross domestic product figures released in July were disappointing, with U.S. and U.K growth figures coming in lower than expected. Other economic indicators also suggested that the global economy was struggling. For example, the number of jobless in the U.S. and the U.K. remained stubbornly high. Eurozone unemployment data was also troubling, particularly in Spain, where 21% of the population is out of work. Moreover, manufacturing indices in the U.S., U.K., eurozone and China fell. The U.S. Purchasing Managers Index (PMI) recorded its lowest reading in over a year in July, but was still above 50, the expansion level. China’s PMI hit its lowest level in more than two years.

Inflation globally remained elevated and, with the exception of the European Central Bank, which raised rates again at the start of the month, most central banks continued to maintain interest rates at historic lows to help stimulate growth.

Market Impact

With the increase in market volatility, all fixed income was positive during the month, as bonds were favored over equities. Reflecting this flight to safety, global government bonds performed best. However, corporate debt also did well, while riskier fixed income—high-yield and emerging-market debt—lagged in comparison. Within government bonds, yields in general fell as demand increased. Bucking this trend was the government debt of struggling European countries, namely Spain and Italy, where yields rose as demand dropped. This was driven by concerns that the economic crisis could spread to these countries. Spain and Italy are much larger economies than any of the other troubled European countries (Greece, Portugal and Ireland) that already have required financial aid. Should Spain or Italy need a bailout, there is currently not enough money in the EFSF to fund it. However, after struggling for much of July, Greek debt rallied toward the end of the month, when sentiment was temporarily buoyed by the bailout announcement.

Equity markets experienced the brunt of market uncertainty in July and declined almost across the board. In a month in which most countries experienced falls, eurozone nations struggled the most. Spanish and Italian equities were particularly hard-hit. Globally, sectors that tend to do well when confidence is high and economic growth is anticipated, known as pro-cyclical sectors, sold off throughout July. The Information Technology and Energy sectors were the only exceptions to this rule, with the former benefiting from strong corporate earnings results from companies within the sector. Energy held up due to strong, but stabilizing, oil prices. The Industrials and Financials sectors lagged notably, the latter largely because of worries about banks’ exposure to eurozone government debt.

The Numbers

  • The Dow Jones Industrial Average index returned -2.05%.
  • The S&P 500 Index fell by 2.03%.
  • The NASDAQ Composite Index returned -0.57%
  • The MSCI AC World Index fell by 1.63%.
  • The Barclays Capital Global Aggregate Index gained 2.06%.
  • 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 from 16.52 to 25.25 during the month.
  • WTI Cushing crude oil prices, a key indicator of movements in the oil market, remained largely unchanged from $95.42 a barrel at the end of June to $95.70 by 29 July.
  • The euro weakened against most currencies in July and investors expressed a preference for the Swiss franc, which is traditionally viewed as a safe haven in times of financial turmoil. The U.S. dollar gained against the euro, but fell against other major currencies. The U.S. dollar ended the period at $1.64 against sterling, $1.44 versus the euro and at 77.19 yen.

Portfolio Review

Continuing uncertainty in terms of the U.S. debt ceiling, the sovereign debt situation in Europe and the progress of Chinese economic growth weighed on SEI’s equity portfolios in July. SEI’s large-cap equity portfolios benefitted from superior stock selection in the Industrials and Consumer Discretionary sectors, but an underweight to Energy detracted from performance. The Information Technology sector continued to be a detractor from performance in small-cap equity. In international equity, an overweight to Canadian names helped, but underweight allocations in Pacific ex-Japan hurt results.

SEI’s fixed-income portfolios also had to deal with markets that were focused on U.S. fiscal issues and ongoing negative headlines regarding European peripheral countries. In core fixed income, an allocation to non-agency mortgage-backed securities hurt with prices weakening due to macro concerns, uncertainty about the economy, and market volatility. In high-yield bonds, security selection within the Consumer Cyclical sector, especially among restaurant companies, was additive. In emerging-market debt, security selection in Argentina hurt performance as the peso weakened and upcoming elections contributed to volatility.


  • Stock selection in Large Cap-Equity – particularly Consumer Discretionary and Industrials
  • Overweight to Energy in Small-Cap Equity – solid security-level performance also helped
  • Pacific ex-Japan in International Equity – stock selection in this region was overwhelmingly positive
  • Energy in High-Yield Bonds – acquisition activity in this sector benefitted performance


  • Sector allocation in Large-Cap Equity – Information Technology and Financials proved especially challenging 
  • Stock selection in Small Cap – Information Technology was a weakness due to issues in the software space 
  • Underweight to Asia in Emerging Markets Equity– particularly in Korea and India 
  • Allocation to Collateralized Loan Obligations in High Yield Bonds – these lagged the improved pricing in the high-yield bond market.

Manager Positioning and Opportunities

SEI’s portfolio managers remain focused on selecting investment managers and constructing portfolios that aim to provide diversified sources of excess return for our portfolios. For large-cap equity, our portfolios’ underlying investment managers are positioned for growth that will be driven by business spending, specifically in corporate IT, as opposed to improvements in the job market and subsequent consumer demand. In small-cap equity, managers hold an overweight to Industrials with a focus on capital goods and transportation. In non-U.S. equity, managers have decreased their overweights to Asian emerging markets. In addition, underweights to Financials and Consumer Staples and overweights to Materials and Industrials have been increased.

Our investment-grade fixed-income managers are overweight the Financial sector as spreads continue to be wide, fundamentals continue to improve and bondholders benefit from new financial regulations. Within the Energy sector, high-yield managers have maintained an underweight in the Gas-Distribution sub-sector as low and projected-low natural-gas prices present a headwind to operations. In emerging-markets debt, managers have added higher-quality bonds with longer durations to the portfolio as global monetary policy is likely to remain accommodative. \

Our View

SEI favors an overweight in equities (emphasizing U.S. large-company stocks) versus investment-grade debt. While this strategy lost during the second quarter and in July, we are confident stocks will eventually rebound relative to bonds. We also favor non-government bonds over sovereign debt and high-yield bonds over investment grade. This is consistent with our view that corporate sectors in the U.S. and other developed economies are in very strong competitive positions. Regionally, we favor a tilt toward U.S. equity versus Europe and Japan owing to our view that the U.S. is the structurally sounder market despite the country’s debt burden.


This material is for educational purposes only and is not meant to be investment advice. The reader should consult with his/her financial advisor for more information. 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.

To determine if the Fund(s) are an appropriate investment for you, carefully consider the investment objectives, risk factors and charges and expenses before investing. This and other information can be found in the Fund's prospectus, which can be obtained by calling 1-800-DIAL-SEI. Read it carefully before investing.

SEI Investments Management Corporation (SIMC) is the adviser to the SEI Funds, which are distributed by SEI Investments Distribution Co. (SIDCO). SIMC and SIDCO are wholly owned subsidiaries of SEI Investments Company. Diversification may not protect against market risk. Current and future portfolio holdings are subject to risks as well.

In addition to the normal risks associated with equity investing, 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. REIT investments are subject to changes in economic conditions, credit risk, and interest-rate fluctuations. Bonds and bond funds will decrease in value as interest rates rise. High-yield bonds involve greater risk of default or downgrade and are more volatile than investment-grade securities, due to the speculative nature of their investments

Index performance returns do not reflect any management fees, transaction costs or expenses. One cannot invest directly in an index. Past performance does not guarantee future results.
For those SEI Funds which employ the 'manager of managers' structure, SEI Investments Management Corporation has the ultimate responsibility for the investment performance of the Fund due to its responsibility to oversee the sub-advisers and recommend their hiring, termination and replacement. 

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  • No Bank Guarantee 
  • May Lose Value