SEI Forward: Faster, higher, stronger

This edition of Forward will look at the current state of capital markets through the lens of the Olympic maxim.

Faster! 

While the winners of the 100-meter dash will be crowned the world’s fastest man and woman, in markets, nothing kept up with the price action of Nvidia. The center of artificial intelligence (AI) mania added nearly $1 trillion to its market value in the fastest time ever. The chip-maker’s market capitalization rose from $2.26 trillion on May 9 to a hefty $3.25 trillion just 30 trading days later. For context, Nvidia added more than the value of Berkshire Hathaway to its market value in six weeks. The company has grown by over $1.8 trillion (roughly the market value of Amazon) in 2024. The dominance of Nvidia and a few other mega-cap names has quelled hopes of a broader equity market rally. 

While the S&P 500 Index closed out a solid quarter up over 4% and has delivered strong year-to-date performance of over 15%, most other developed equity markets delivered negative performance for the quarter and have fallen even further behind year to date as the big got even bigger.

We continue to view both concentration and valuation as concerning for U.S. equity investors. We believe the current size and future growth expectations of the top names set the bar exceedingly high even for the most stellar companies in the most transformative industries. In addition, while we have been highlighting the relatively low level of broad equity volatility for the better part of a year, we are also focusing on the high level of volatility present specifically in the market’s biggest names. The CBOE Volatility Index or VIX is a forward-looking view of volatility derived from 30-day S&P 500 options. The VIX closed the month at roughly 12.50% which is significantly under the longer-term average of about 16%. The same measure of implied volatility for Nvidia is roughly 4 times the VIX level, at over 50%. Certainly it makes sense for single name volatility to be higher than the market level; however, when one of the biggest companies in the world is trading with such high levels of volatility, this suggests to us that a bumpier ride may be in store for equity investor in the second half of 2024. 

Today’s equity market dynamics remind us that diversifying exposures across geographies, sectors, factors and individual companies are as important as ever for investors, and we remain committed to this foundational principle. This is particularly acute for passive investors who, at this stage of the cycle (concentrated and expensive), may want to begin diversifying into actively managed strategies. Speaking of actively managed strategies, as we embark on the third quarter of 2024, we continue to emphasize our preferred factors of value, quality, and momentum with a particular emphasis on value names and sectors. Value spreads—or the difference between cheap and expensive stocks—remain extremely wide and represent a compelling opportunity. From a sector lens, our value exposures tends to favor financials, energy and materials, our momentum exposure leans into Industrials, while our quality exposure tends to be concentrated in consumer staples.

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.

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.