Market Overview and Insights

Fourth Quarter 2011 

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Hello,

I’m Kevin Barr, Head of SEI’s Investment Management Unit. Over the next few minutes, I will provide an update on the global financial markets and their impact on our strategies.

I will also provide guidance on our expectations for the coming year.

Looking back at the fourth quarter of 2011, equity markets overcame significant volatility to finish the quarter with positive returns. In U.S. dollar terms, the MSCI All Country World Index, which serves as a proxy for global equity markets, was up 7.18% for the quarter. The solid advance came despite the financial crisis in Europe, political wrangling over budget talks in the United States and slowing economic growth in China and other emerging markets.

For the full year, the Index struggled, closing down 7.4%

The Barclays Capital Global Aggregate Bond Index, which represents global bond markets, gained just 0.23% for the quarter. In a reversal of the third quarter’s results, investors embraced risk, driving up prices for riskier assets. Emerging-market debt and high-yield bonds outpaced their more conservative counterparts.

For the full year, the Index gained 5.6%.

U.S. equity markets, represented by the S&P 500 Index, gained 11.82% for the quarter and 2.11% for the year. On the fixed-income side, the Barclay’s Capital U.S. Aggregate Bond Index rose 1.12% for the quarter and 7.84% for the year.

In the fourth quarter, we saw sovereign debt concerns in Europe continue to escalate. Italy and Spain joined the growing list of troubled countries as Europe moved toward recession. Emerging markets raised concerns too as the pace of growth slowed. While economic indicators improved in the U.S., efforts to reign in the nation’s ballooning debt failed. The end result was a continuation of heightened market volatility.

Equity markets shook off the concerns, and the fourth quarter saw a sharp rotation out of defensive sectors and into growth sectors. In the fourth quarter, every sector in the MSCI All Country World Index posted gains with Energy and Industrials providing the best results in U.S. dollar terms. This was a complete reversal from the third quarter in which all sectors showed losses.

SEI’s results were once again in line with the global markets. Our equity Funds in generally had a solid quarter in a challenging year. Our fixed-income Funds continued to deliver competitive results for the quarter and the year, highlighting the benefits of diversification across asset classes.

During the closing months of the year, we began to position our portfolios for the year ahead. In the portfolios over which we have discretion, we neutralized our overweight position to stocks versus bonds following stock market gains.

Looking ahead, we favor U.S. stocks over international stocks based on the relative strength of the U.S. economy. U.S. large caps, in particular, appear attractive. Within fixed income, we favor an overweight to high-yield versus investment-grade as relative-value opportunities are more attractive in the high-yield space.

In the weeks and months ahead, we expect to see continued growth in the U.S. and Canada with a mild recession in Europe. Geopolitical factors remain a concern, and we expect a bumpy ride.

We will continue to monitor the markets and manage our investment strategies accordingly.

Thank you, as always, for your trust and confidence in SEI.

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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 is no assurance as of the date of this material that the securities mentioned remain in or out of SEI Funds.

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.

To determine if the Funds 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 Funds’ prospectuses, which can be obtained by calling 1-800-DIAL-SEI. Read them carefully before investing.

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. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. 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.

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. 

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