Third quarter SEI Forward

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October 3, 2024

6 MIN READ

Trick or treat?

The third quarter prepared investors well for the upcoming Halloween season as several pivotal events heightened uncertainties regarding the direction of the economy, geopolitics, and capital markets. Will central banks deliver the treat of a soft landing, or will subsiding inflationary trends prove to be a temporary trick as stimulus measures and spreading geopolitical tensions act as catalysts for a reversal? Is broadening equity market performance a reflationary treat as the global economy remains robust and financing rates fall, or just the trick of a short-term junk risk rally? Finally, will long-term interest rates treat investors by following short-term rates lower or will the summer rally prove to be just a trick upended by overly simulative monetary policy and every increasing debt levels?

As we enter the final quarter of 2024, the world’s two largest economies are handing out plenty of sweets in the form of easing monetary policies and a broad range of fiscal stimulus measures that should provide ballast to the global economy. U.S. Federal Reserve (Fed) policy-makers delivered a somewhat surprising 50-basis point interest rate cut in September. It is likely to be followed by an additional 50 basis points of easing by year-end. Reductions in the federal funds rate, particularly of this magnitude, are typically accompanied by a decline in gross domestic product (GDP) and rising credit spreads.

All amounts in USD unless otherwise noted.

Read the full commentary

Indexes definitions

The Bloomberg Commodity Index comprises futures contracts and tracks the performance of a fully collateralized investment in the index. This combines the returns of the index with the returns on cash collateral invested in 13-week (three-month) U.S. Treasury bills.
The Bloomberg Global Treasury Index tracks fixed-rate, local currency government debt of investment grade countries, including both developed and emerging markets.
The MSCI ACWI ex USA Index tracks the performance of both developed-market and emerging market countries, excluding the United States.
The MSCI China All Shares Index tracks the performance of large- and mid-cap stocks in China. The index’s 151 constituents, comprise about 85% of the China equity universe. The S&P 500 Index is a market-weighted index that tracks the performance of the 500 largest publicly traded U.S. companies and is considered representative of the broad U.S. stock market.
The S&P 500 Equally Weighted Index is an equally-weighted index that tracks the performance of the 500 largest publicly traded U.S. companies and is considered representative of the broad U.S. stock market.
The Russell 2000 Index tracks the performance of the small-cap segment of the U S. equity market. The index is a subset of the Russell 3000 Index, which comprises the 3,000 largest U.S. companies, and includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership

Glossary

A basis point equals .01%.
A credit spread is the difference between the yields of two bonds with the same maturity but different credit quality.
The Federal funds rate is established by the Fed and is the interest rate that large financial institutions use to borrow/lend in the overnight market.
Gross domestic product (GDP) is the total monetary or market value of all the goods and services produced in a country during a certain period.
Momentum is a trend-following investment strategy that is based on acquiring assets with recent improvement in their price, earnings, or other relevant fundamentals.
The option-adjusted spread the measurement of the spread of a fixed-income security rate and the risk-free rate of return, which is then adjusted to consider an embedded option.
Quality comprises a long-term buy-and-hold strategy that is based on acquiring shares of companies with strong and stable profitability with high barriers of entry (factors that can prevent or impede newcomers into a market or industry sector, thereby limiting competition).
Risk assets, such as equities, commodities, high-yield bonds, real estate, and currencies, carry a degree of risk and generally are subject to significant price volatility.
Value is an investment strategy that is based on acquiring assets at a discount to their fair valuations. Mean reversion is a theory that prices and returns eventually move back towards their historical average.
The 10-Year U.S. Treasury Yield is the interest rate the U.S. government pays to borrow money for 10 years. It is also known as the 10-year bond rate and is a key indicator of economic conditions and investor sentiment.
The yield curve shows the interest rates for bonds with the same credit quality but different maturity dates.

Important information

SEI Investments Canada Company, a wholly owned subsidiary of SEI Investments Company, is the Manager of the SEI Funds in Canada.

The information contained herein is for general and educational information purposes only and is not intended to constitute legal, tax, accounting, securities, research or investment advice regarding the Funds or any security in particular, nor an opinion regarding the appropriateness of any investment. This information should not be construed as a recommendation to purchase or sell a security, derivative or futures contract. You should not act or rely on the information contained herein without obtaining specific legal, tax, accounting and investment advice from an investment professional.

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. 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. This material may contain "forward-looking information" ("FLI") as such term is defined under applicable Canadian securities laws. FLI is disclosure regarding possible events, conditions or results of operations that is based on assumptions about future economic conditions and courses of action. FLI is subject to a variety of risks, uncertainties and other factors that could cause actual results to differ materially from expectations as expressed or implied in this material. FLI reflects current expectations with respect to current events and is not a guarantee of future performance. Any FLI that may be included or incorporated by reference in this material is presented solely for the purpose of conveying current anticipated expectations and may not be appropriate for any other purposes.

Additional important information

Information contained herein that is based on external sources or other sources is believed to be reliable, but is not guaranteed by SEI Investments Canada Company, and the information may be incomplete or may change without notice. Sources may include Bloomberg, FactSet, Morningstar, Bank of Canada, Federal Reserve, Statistics Canada and BlackRock.

There are risks involved with investing, including loss of principal. Diversification may not protect against market risk. There may be other holdings which are not discussed that may have additional specific risks. In addition to the normal risks associated with investing, international investments may involve risk of capital loss from unfavourable 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, in addition to those associated with their relatively small size and lesser liquidity. Bonds and bond funds will decrease in value as interest rates rise.

Index returns are for illustrative purposes only, and do not represent actual performance of an SEI Fund. Index 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.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

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