Kevin Barr, Head of SEI's Investment Management Unit, gives an overview of the global financial markets and our perspective on them.

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Transcript

I'm Kevin Barr, Head of SEI's Investment Management Unit. Over the next few minutes I will provide an overview of the global financial markets and our perspective on them.

We’ve concluded an unforgettable and truly remarkable year in the financial markets even as COVID-19 created a year that many of us would like to forget. 

For investors, the fourth quarter’s impressive sprint to the finish line was a fitting end to a tumultuous 2020.

Of course, this outcome was not a foregone conclusion at the start of the quarter. September had just delivered the first monthly loss for risk assets since March.

We can see that the initial recovery stumbled in mid-October as a new wave of COVID-19 cases accumulated around the globe and a return to lockdown measures began to take shape.

Then a sharp early-November advance followed, coinciding with the U.S. presidential election. This rally was propelled higher through the end of the year by a series of much-welcomed announcements about the effectiveness, approval, and distribution of COVID-19 vaccines.

Even as the fourth quarter continued the upward trend from second and third quarter recoveries, the stocks driving the gains began to change. 

A rotation in market leadership appears to have begun from growth-oriented stay-at-home stocks to less-expensive cyclically-oriented stocks.

Sector-level performance highlights the change. We can see that energy and financials were the top performers by a wide margin in the fourth quarter. These were the third quarter’s worst performers; in fact, they lagged for most of 2020. 

Sector performance generally moved in lockstep both within U.S. equities and around the globe. We’ve ranked global equity sectors by fourth-quarter returns here, and we also show their full-year performance. Energy and financials turned in full-year losses despite their impressive fourth-quarter rallies.

Performance in the fixed-income universe also joined the rally into year end. The riskiest segments fared the best, with emerging-market debt and high-yield bonds leading during the fourth quarter.

U.S. Treasurys, which are often the choice of the most conservative, risk-averse investors, were the only negative-performing fixed-income segment.

But Treasurys fared much better if we look at full-year performance. Investment-grade corporates had the best full-year returns after a comparably modest fourth quarter.

Local-currency-denominated emerging-market debt…the fourth quarter’s best performer…trailed for the full year.

We’re all looking forward to a better 2021. And, based on fourth quarter data, it appears investors have already begun to expect an economic recovery.

While we have seen a short-term rotation over the last few months, it’s probably premature to declare it the beginning of a long-term shift in equity investment themes.

In the near-term, slowdowns or pauses in vaccine manufacturing and distribution are likely to be among the factors that contribute to market volatility.

Short-term challenges and potential market rotations aside, we encourage investors to remain committed to a globally diversified investment portfolio. We believe diversification is a prudent approach to pursing your financial goals in all market environments. 

On behalf of everyone at SEI, thank you, as always for your trust and confidence. 

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Index Descriptions 

Bloomberg Barclays 1-10 Year US TIPS Index: The Bloomberg Barclays 1-10 Year US TIPS Index measures the performance of inflation-protected public obligations of the U.S. Treasury that have a remaining maturity of 1 to 10 years.

Bloomberg Barclays U.S. Corporate Bond Index: The Bloomberg Barclays U.S. Corporate Investment Grade Index is a broad-based benchmark that measures the investment-grade, fixed-rate, taxable corporate bond market.

Bloomberg Barclays U.S. Treasury Index: The Bloomberg Barclays U.S. Treasury Index is an unmanaged index composed of U.S. Treasurys.

ICE BofA U.S. High Yield Constrained Index: The ICE BofA U.S. High Yield Constrained Index tracks the performance of below-investment-grade, U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market and caps exposure to individual issuers at 2%.

JPMorgan EMBI Global Diversified Index: The JPMorgan EMBI Global Diversified Index tracks the performance of external debt instruments (including U.S. dollar-denominated and other external-currency-denominated Brady bonds, loans, eurobonds and local-market instruments) in the emerging markets.

JPMorgan GBI-EM Global Diversified Index: The JPMorgan GBI-EM Global Diversified Index tracks the performance of debt instruments issued in domestic currencies by emerging-market governments.

MSCI ACWI Index: The MSCI ACWI Index  is a market capitalization weighted index composed of over 2,800 companies, and is representative of the market structure of 49 developed and emerging market countries in North and South America, Europe, Africa, and the Pacific Rim. The index is calculated with net dividends reinvested in U.S. dollars.
S&P 500 Index: The S&P 500 Index is an unmanaged, market-capitalization weighted index that consists of the 500 largest publicly traded U.S. companies and is considered representative of the broad U.S. stock market

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