Market volatility comes and goes. Diversification remains.

Have you ever found yourself sighing in exhaustion, muttering “what a day,” and then realizing it’s only 10:30 AM?  If so, you know how investors in capital markets feel at the time of this writing (mid-April 2025).

Today’s tariff turmoil 

Barely a quarter of 2025 has passed, and we’ve experienced more than enough excitement for a whole year. Markets have been whipsawed by unpredictable shifts in trade rhetoric and policy announcements, with the Trump administration repeatedly issuing harsh tariff threats only to soften them days later. Policy toward China is the exception, but there are exceptions to the exception— staying up to date on tariff news is a full-time job these days. 

Year to date through April 8 is a short period of time—and an especially volatile one—meaning there is inevitably a good deal of noise in the data. Yet in times like these, we find it useful to look at our portfolios’ experience and compare it to our prior expectations. We can’t know what the market will do in any particular period, but naturally we have some understanding of how our portfolios should typically perform in specific market environments. Every crisis is different, so our expectations won’t always hold true. Still, we believe there is value in conducting this exercise and using what we learn to evolve our expectations for the future. 

For the purposes of this analysis, we considered the year to date through April 8, the day before President Trump’s 90-day tariff pause for non-retaliating nations and the subsequent market rally— one of the largest one-day rallies on record. Obviously, we have no idea whether this marks the ultimate bottom in equity prices (We certainly hope it does!). We simply chose this period as it feels like a non-arbitrary lens through which to assess our portfolios’ performance during this especially volatile time. 

Strategic asset allocation 

The essence of diversification is acknowledging the unknown and seeking to mitigate losses to one’s portfolio as much as possible. SEI’s asset allocation approach is built with this objective in mind. Our process includes several unique principles that differentiate our portfolios from more simplistic approaches. Importantly, these principles are strategic, not tactical, in nature. In other words, they are features that we believe make sense as a neutral or default position rather than being based on any particular temporary market view. These principles reflect different means by which we diversify our portfolios and seek to insulate them against the inevitable unpredictability that comes with investing in capital markets. 

Principle: Global equity diversification 

We recognize that many investors feel more comfortable with securities listed in their home country and therefore prefer to favor that country in their portfolios’ geographic exposures. As goals-based investors operating at the intersection of traditional and behavioral finance, we are able to accommodate investors who have a strong preference for this “home country bias.” That common preference aside, we firmly believe there is a strong case to be made in favor of globally diversified equity portfolios. 

Individual countries’ stock markets often contain high levels of concentration in individual sectors, industries, and companies. Diversifying globally spreads this risk out more broadly, reducing the portfolio’s vulnerability to shocks from any individual source of risk. This is a classic application of the principle of diversification: by broadening out geographic exposures, the investor can reduce portfolio volatility without sacrificing expected return. 

Naturally, over any short period of time, assessing the effectiveness of global diversification is subject to noise.  With the benefit of hindsight, one’s home country will either have underperformed the rest of the world or outperformed it, making global diversification appear to be a good decision or a bad one, respectively. Unfortunately, predicting the future is far more challenging than describing the past. Investing in capital markets inherently entails uncertainty, and in the face of uncertainty, effective diversification prepares portfolios for the widest range of potential outcomes.

For the UK-based investor, global diversification has generally produced positive outcomes in recent years. With the United States such a large component of global benchmarks, both strong price performance and an appreciating U.S. dollar have yielded significant outperformance for international equities. The year to date has seen precisely the opposite dynamic, with U.S. equities and the dollar lagging versus peers as investors try to make sense of ever-changing U.S. trade policy. These two environments demonstrate the importance of global diversification: we never know where the next crisis will be focused, and balancing risk across many geographies, sectors, and industries provides the best insulation against unpredictable future shocks.

Important 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. All information as of the date indicated. There are risks involved with investing, including possible loss of principal. This information should not be relied upon by the reader as research or investment advice, (unless you have otherwise separately entered into a written agreement with SEI for the provision of investment advice) nor should it be construed as a recommendation to purchase or sell a security. The reader should consult with their financial professional for more information. 

Statements that are not factual in nature, including opinions, projections and estimates, assume certain economic conditions and industry developments and constitute only current opinions that are subject to change without notice.  Nothing herein is intended to be a forecast of future events, or a guarantee of future results.   

Certain economic and market information contained herein has been obtained from published sources prepared by other parties, which in certain cases have not been updated through the date hereof. While such sources are believed to be reliable, neither SEI nor its affiliates assumes any responsibility for the accuracy or completeness of such information and such information has not been independently verified by SEI. 

There are risks involved with investing, including loss of principal. The value of an investment and any income from it can go down as well as up. Investors may get back less than the original amount invested. Returns may increase or decrease as a result of currency fluctuations. Past performance is not a reliable indicator of future results. Investment may not be suitable for everyone.