Skip to main content

Intelligent design: How SEI's default investment options manage volatile markets

April 17, 2020
clock 6 MIN READ

The recent market volatility and general uncertainty around the COVID-19 pandemic have caused defined contribution (DC) pension scheme members to worry as they see their savings dip. During these turbulent times, we want to share some insight as to how our Default Investment Options (DIOs) are constructed to weather market declines and assist in protecting members’ savings.

First and foremost, the funds utilised in our Master Trust and in our Fiduciary DC service are monitored on an ongoing basis, both at the asset allocation level and within the underlying asset classes. We position portfolios with a long-term view, noting that market dislocations are short term in nature and that the status quo remains that markets do well over the long term. With this in mind, it’s important for members to stay invested through market downturns and gain the upside once market returns begin to improve.

Protecting Members’ DC savings

Our portfolios are constructed with an intelligent design, meaning they take into account the different stages of investment: growth, consolidation, and pre-retirement. Members in the growth phase are mostly invested in equities since their investing horizon is long enough that it should allow for markets, and investments, to recover before they need to draw from them in retirement.

On the other hand, members close to or even in retirement already are understandably worried about erosion of their fund value, and therefore, retirement income. This is a problem that we think no individual member should have to worry about solving. Our two stability-focused portfolios, used in our DIOs (and often offered as self-select funds) help solve this problem because they are designed to protect against losses while working towards a comfortable level of growth. These less volatile funds, called the SEI Moderate Fund and SEI Defensive Fund, are carefully designed to protect members' savings in a number of ways:

SEI Moderate Fund

Members in the DIO who are approaching retirement will see their savings move into the SEI Moderate Fund. This fund invests heavily in fixed income but also in our Global Managed Volatility solution. 

Because we actively manage portfolios, we can change the amount we allocate to fixed income and Global Managed Volatility depending on market conditions.

The SEI Moderate Fund is also designed to restrict its loss to a maximum of 30% from its previously highest value. In other words, no matter how far stock markets fall, the fund should not lose more than 30%, because SEI will automatically move to less risky investments to mitigate the decline. This helps protect retirement savings, and therefore retirement income, from bigger short-term losses in the stock markets.

SEI Defensive Fund

The SEI Defensive Fund is designed for members who are almost at or beyond retirement age and might be living on their savings. These members are the most vulnerable during market downturns. The SEI Defensive Fund is managed to further reduce the chance of market losses, limiting any decline to a maximum of just 10% from its previously highest value.

In other words, no matter how far stock markets fall, members in the SEI Defensive Fund should not see their investment lose more than 10%. This loss target helps to protect members’ retirement income when it matters most.

How has this worked for those investing in the SEI Moderate and SEI Defensive Funds?

During the financial crisis in 2008, our strategies in the US reached their maximum loss targets. The Defensive strategy was reallocated to even more stable asset classes, and as a result, its volatility was reduced.

Currently, each strategy in the UK is well within its drawdown range. We are closely monitoring the funds and have not taken any de-risking actions yet. If this were to change, as it did in the US in 2008, we would take the appropriate steps to reallocate the portfolios to limit further falls in value. As the situation changes, we will keep you informed of any portfolio de-risking activity.

As you can see, a significant advantage for members investing in the SEI DIOs is that when stock markets fall, as they have done in recent weeks, members’ savings are not completely tied to these markets. SEI can and will make well planned and strategic changes to help protect members’ savings from further market losses, while avoiding knee-jerk reactions during times of uncertainty and market volatility.

The intelligent design of our Master Trust and DC Fiduciary Default Investment Options allows us to build investments for members’ needs as they change up to and through retirement, protecting savings from market turbulence. Our goal is to help provide reassurance and investment stability during some very difficult times.

We hope you and your families are staying safe and well through this difficult time. If you have any questions regarding the DIOs in the SEI Master Trust or DC Fiduciary service, please contact Steve Charlton, Managing Director, at 

Important information

This material is not directed to any persons where (by reason of that person’s nationality, residence or otherwise) the publication or availability of this material is prohibited. Persons in respect of whom such prohibitions apply must not rely on this information in any respect whatsoever. Investment in the funds or products that are described herein are available only to intended recipients and this communication must not be relied upon or acted upon by anyone who is not an intended recipient.

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. Past performance is not a reliable indicator of future results. Investments in SEI Funds are generally medium to long-term investments. The value of an investment and any income from it can go down as well as up. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. Investors may not get back the original amount invested.

The SEI Strategic Portfolios are a series of the SEI Funds and may invest in a combination of other SEI and Third-Party Funds as well as in additional manager pools based on asset classes. These manager pools are pools of assets from the respective Strategic Portfolio separately managed by Portfolio Managers which are monitored by SEI. One cannot directly invest in these manager pools. 

The Global Managed Volatility fund is structured as an open-ended collective investment scheme and is authorised in Ireland by the Central Bank as a UCITS pursuant to the UCITS Regulations. The fund is managed by SEI Investments, Global Ltd (“SIGL”). SIGL has appointed SEI Investments (Europe) Ltd (“SIEL”), an affiliate of SIGL, to provide general distribution services in relation to the fund. The Global Managed Volatility Fund may not be marketed to the general public except in
jurisdictions where the funds have been registered by the relevant regulator. The matrix of the SEI fund registrations can be found here

Any reference in this document to any SEI funds should not be construed as a recommendation to buy or sell these securities or to engage in any related investment management services. Recipients of this information who intend to apply for shares in any SEI fund are reminded that any such application must be made solely on the basis of the information contained in the Prospectus (which includes a schedule of fees and charges and maximum commission available). 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.

The views and opinions in this brochure are of SEI only and are subject to change. These views and opinions should not be construed as investment advice. This document is issued by SEI Investments (Europe) Limited (SIEL), 1st Floor, Alphabeta, 14-18 Finsbury Square, London EC2A 1BR. SIEL is authorised and regulated by the Financial Conduct Authority.

Our perspectives on industry challenges and opportunities.