Volatility with a vengeance

A carry trade involves borrowing at a low interest rate and then investing in an asset with a higher interest rate. 

Credit quality refers to a security’s creditworthiness and risk of default. The higher the credit quality (or rating), the lower the perceived risk of default. The ratings for S&P Global Ratings and Fitch Ratings range from AAA (highest) to D (lowest). Moody’s Investors Service assigns credit ratings from Aaa to C. Ratings below BBB/Baa are classified as non-investment-grade, or “junk,” and are considered to be riskier. 

Duration is a measure of a security’s price-sensitivity to changes in interest rates. Specifically, duration measures the potential change in value of a bond that would result from a 1% change in interest rates. The shorter the duration of a bond, the less its price will potentially change as interest rates rise or fall. Conversely, the longer the duration of a bond, the more its price will potentially change. 

A factor is a quantifiable security characteristic that drives returns and can be used to explain the differences in performance between securities. Examples include value, momentum, quality, and low volatility. 

Momentum is a trend-following investment strategy that is based on acquiring assets with recent improvement in their price, earnings, or other relevant fundamentals. 

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). 

Value is a mean-reverting 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 yield curve represents differences in yields across a range of maturities of bonds of the same issuer or credit rating. A steeper yield curve represents a greater difference between the yields. A flatter curve indicates that the yields are closer together.

The CBOE Volatility Index (VIX) measures the constant 30-day volatility of the U.S. stock market using real-time, mid-quote prices of S&P 500 Index call and put options. A call option gives the holder the right to buy a stock at a specified price; a put option gives the holder the right to sell a stock at a specified price. 

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.

Index returns are for illustrative purposes only and do not represent actual portfolio performance. Index returns do not reflect any management fees, transaction costs or expenses. One cannot invest directly in an index. 

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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 strategies 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. 

SEI sources data directly from FactSet, Lipper, and BlackRock unless otherwise stated. Information provided by SEI Investments Management Corporation, a wholly owned subsidiary of SEI Investments Company (SEI). They should not be construed as investment advice. 

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Issued in South Africa by SEI Investment (South Africa) (Pty) Limited FSP No. 13186 which is a financial services provider authorised and regulated by the Financial Sector Conduct Authority (FSCA). Registered office: 3 Melrose Boulevard, 1st Floor, Melrose Arch 2196, Johannesburg, South Africa. 

This material is intended for information purposes only and the information in it does not constitute financial advice as contemplated in terms of the Financial Advisory and Intermediary Services Act. 

SIEL is not licensed under Israel’s Regulation of Investment Advising, Investment Marketing and Portfolio Management Law, 5755- 1995 (the “Advice Law”) and does not carry insurance pursuant to the Advice Law. No action has been or will be taken in Israel that would permit a public offering or distribution of the SEI Funds mentioned in this email to the public in Israel. This document and any of the SEI Funds mentioned herein have not been approved by the Israeli Securities Authority (the “ISA”).

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 strategies 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.

The views contained herein are not to be taken as advice or a recommendation to buy or sell any investment in any jurisdiction. Our outlook contains forward-looking statements that are judgments based upon our current assumptions, beliefs, and expectations. If any of the factors underlying our current assumptions, beliefs or expectations change, our statements as to potential future events or outcomes may be incorrect. We undertake no obligation to update our forward-looking statements.