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Staying the Course through Market Volatility Investor Presentation.

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Presentation on theme: "Staying the Course through Market Volatility Investor Presentation."— Presentation transcript:

1 Staying the Course through Market Volatility Investor Presentation

2 2 Navigating through Market Turbulence Recent market volatility has left some investors feeling uneasy about their portfolios S&P 500 declined 10% from October 9th to November 26 S&P 500 rebounded in December, ending the year at 3.5% And the rollercoaster ride continues… Through the first three weeks of January 2008, the S&P has declined 9.7% As we come to terms with recent volatility, it is important to revisit some basic principles about the stock market.

3 3 US Equity Markets - A Wild and Bumpy Ride… Feb. 27 th – US stocks plunged, erasing all of 2007 gains after sell- off in China spreads and sparked the biggest rout in four years Aug. 28 th – Financial shares drive the S&P 500 down 2.4% as 487 of its members fell March 13 th – Mortgage Bankers Association reports that delinquencies for sub-prime reached 13.33% in Q4, highest since Q203 Nov. 1 st – US Financials fall 4.6%, the most since September 2002 Aug. 9 th – All 10 industry groups in the S&P 500 dropped more than 2% Source: Bloomberg Apr. 16 th – S&P 500 surged to its highest in more than six years 2007 S&P 500 Roller Coaster Ride

4 4 Putting Recent Volatility in Perspective October 9th to November 26th - S&P 500 Declined Just Over 10% Past 12 Months 1/02/07 through 12/31/07: –S&P appreciated roughly 3.5% –Total return basis nearly 5.5% (includes dividend reinvestment) Year-to-Date through 1/18/08: –S&P down roughly 9.75% –Total return basis 9.67% (includes dividend reinvestment)

5 5 Short-term Market Swings are the Norm, Not a Signal that the Sky Is Falling Be Wary of Market Hysteria and Chicken Little! This is not a prediction, it is a certainty - there will be serious disruption in the worlds financial services industry. Its going to be ugly -The Sunday Times, London - As we know, Y2k came and went smoothly Capitalism will come to an end in the United States around the year 2000 Stock markets will start crashing by the end of Dr. Ravi Batra, Prof. of Economics, The Great Depression of S&P 500 proceeded to return in excess of 20% for the years 1997, 1998 and 1999 It is important to evaluate financial news with a trusted Advisor

6 6 Pundits and Media Contribute to the Hysteria… Source: Bloomberg Jan. 12th - The biggest concern that investors have is not that a recession is likely but that growth might be too strong Jan. 24th - After this sluggish start to the year, we should have a pretty good stock market as we go through 2007 Feb. 20th - While the mortgage market for borrowers with poor credit is behaving in a very problematic way, the issue is unlikely to spread to the rest of the bank industry….most of the problem loans are outside the banking system Mar. 13th - People are panicking…Everyone is concerned about credit and that access to capital will be severely restricted. If that happens, nothing gets done. Mar. 20th - It supports many peoples soft-landing scenarios, where housing doesnt get that bad. Aug. 9th - The overnight rate banks charge each other in dollars jumped to the highest in six years. Aug. 28th - The Conference Board reported today consumer confidence fell the most since 2005, while the S&P/CS Schiller said home values had the steepest tumble in at least five years in June. Nov. 1st - There is more downside in financials. We just dont know what the ultimate impact is going to be for all the sub-prime difficulties. Dec. 10th - Negative news from the banking industry are not that shocking anymore. Now the question is what would the right timing for buying bank shares.

7 7 The Stock Market Can Be a Roller-Coaster Ride: Be Careful When You Get Off! Over the short-term, stocks are volatile and difficult to predict Market response to concern about subprime mortgages and other recessionary concerns: Investor panic that the economy would collapse Dow drops by 416 points on February 27 Biggest one-day fall since the 9/11 attacks Dow then reaches a record high of 13,633 on May 30 Breaks record 4 more times, reaching 14,164 on October 9 4 th Quarter pullback stretches into 2008 Dow closes at 12,099 on January 18 (down 8.8% in 2008) Dow opens 400 points down at the opening bell on January 22 Federal funds rate cut by three quarters of a percentage point Resist market panic, and evaluate buy/sell decisions with your Advisor

8 8 If a Recession is Underway, It Would Keep the Market in Retreat But It Could Also Lead to an Investment Opportunity Source: Ned Davis Research; S& P 500 Index returns based 10 post-war recessions, Recession Could Lead to Table Pounding Buy, January 14, 2008 Average Performance Before, During & After recessionAverage & Median Performance from S&P500 Low During Recession (i.e. Rebound) Based on the 10 post-war recessions, we see that the markets could recover relatively quickly and investors could miss the rebound with market timing. The 10 post-war recessions have lasted a median of 10 months

9 9 Source: Ibbotson Associates, SEI S&P 500 Annual Returns ( ) The indices illustrated herein are unmanaged indices. You cannot invest directly in an index. Index returns do not reflect the impact of any management fees, transactions costs, or expenses. The information seen is for illustrative purposes only and are not reflective of the performance of any SEI funds. Past performance is no guarantee of future results. 0 Below -20% -20% to -10% -10% to 0 0 to +10% +10% to +20% Over +20% The Stock Market Delivers Over the Long-term From 1966 through 2005, the S&P 500 has returned an average of 10.53% However, the returns received each year varied greatly, from –26% to +37% 2002

10 10 Investment PeriodAverage Annual Total Return Fully Invested (2,519 days)5.89% Minus 10 Best Days 1.91% Minus 20 Best Days -0.82% Minus 30 Best Days -3.23% Minus 40 Best Days-5.25% Treasuries*2.65% Source: S & P 500 Index: 01/01/98 to12/31/07 * Lehman US Short Treasury Bills Market Timing: Moving In and Out of Cash During Volatile Times Can Be Costly

11 11 Asset Class Returns Vary Throughout Time

12 12

13 13 Managing Volatility through Diversification A broad set of asset classes helps to smooth out volatility and cushion market declines. During the stock markets rocky 4 th quarter, some asset classes had positive returns: Stocks - as measured by the S & P % Bonds - Lehman US Aggregate+ 3.0% Treasuries - Lehman 1-3 Govt Bond+ 2.3% This trend continued during the first three weeks of 2008: Stocks - as measured by the S & P % Bonds - Lehman US Aggregate+ 1.7% Treasuries - Lehman 1-3 Govt Bond+ 1.3% Use a balanced approach to investing

14 14 Investors Should Benefit from a Long Term and Diversified Exposure to the Broad Markets Natural oscillation between fear and greed may lead to sub-optimal portfolio decisions The credit market has suffered regardless of fundamentals; many managers see a lot of under-valued credits; while still in full swing, the credit crisis is showing signs of mending Fears of a slowdown in global growth may be exaggerated –Overall global growth remains as strong as it has been in the last 25 years. Emerging market economies now make up 50% of the worlds GDP and about 75% of the worlds recent growth. Emerging markets could continue to grow since they are still in the middle of a productivity revolution i.e. investing in their own infrastructure and running significant current account surpluses We live in a world of cycles (economic, market and investors sentiment) that should lead to viable investment opportunities –A well diversified asset allocation can weather turbulent times SEIs experienced managers understand that we live in a world of cycles; they dont panic and maintain their discipline; they look for opportunities where others see uncertainty and fear; theyre humble; they re-assess their positioning as new data becomes available. Investors should focus on their long term goals and try not to give into the natural inclination toward greed and fear.

15 15 The Disciplined Investment Approach A Simple Six-Step Process 1.Asset Allocation: Design a customized portfolio based on your personal objectives, time horizon and risk tolerance. 2.Portfolio Structure: Diversify across asset classes and market sectors to maximize returns and moderate risk. 3.Tax Management: Increase your investment returns by reducing taxes. 4.Specialist Managers: Take advantage of the expertise provided by money managers who specialize in specific areas of the market. 5.Portfolio Management: Monitor your portfolio on a regular basis to evaluate manager performance and rebalance as necessary. 6.Consult with Your Financial Advisor: Review your progress with an objective professional, and discuss any changes in your objectives, time horizon or risk tolerance to maintain your strategic positioning.

16 16 Asset Allocation is the Primary Determinant of Total Portfolio Return Source: Brinson, Singer, and Beebower (1991) Security Selection 4.6% Market Timing 1.8% Other 2.1% Asset Allocation 91.5%

17 17 The Benefits of a Systematic Investment Approach Identify Client Objectives Identify Relevant Risks Identify Appropriate Portfolios Structured Asset Allocation Efficient Portfolio Construction Manager Selection Continuous Portfolio Monitoring Tax Management

18 18 Staying the Course: What You Can Expect from Me As your advisor, it is my responsibility to: Help you assess and re-assess your risk tolerance throughout time Guide you in making decisions to meet your individual goals Design the optimal portfolio structure based on your objectives, time frames and risk tolerance Continuously monitor your portfolio performance Provide you with regular reporting statements Keep you abreast of any additional opportunities to improve your chances of achieving financial success

19 19 Where Do We Go from Here? Nobody has a crystal ball and we cant predict the market We can ensure that we are implementing the best possible strategy Recent events remind us of the need to re-assess you risk tolerance as well as review and rebalance your portfolio structure to maintain your strategic positioning Decisions and alternatives also need to be weighed within the context of the broader economic landscape

20 20 Disclosure 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. This information should not be relied upon by the reader as research or investment advice. This information is for educational purposes only. Index returns are for illustrative purposes only and do not represent actual fund performance. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results. To determine if the fund(s) are an appropriate investment for you, carefully consider the funds investment objectives, risk factors and charges and expenses before investing. This and other information can be found in the Funds prospectus, which may be obtained by calling DIAL-SEI. Please read it carefully before investing. There are risks involved with investing, including loss of principal. SEI Investments Management Corporation 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.


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