• Emerging-market equities outpaced developed markets for the fourth quarter and calendar year. Global sector-level performance was shaken up during the final three months of the year: Energy and financials— which lagged for most of 2020—were the top performers by a wide margin.
  • Signs of a recovery should continue to reveal themselves as COVID-19 abates and economic activity normalizes. In the meantime, fiscal spending and accommodative central-bank policy should prop up inflation.

Capital markets began the fourth quarter of 2020 at a crossroad: After risk assets capped off the prior quarter with their first monthly loss since rallying in March, a recovery stumbled in mid-October on a global resurgence of COVID-19 cases. However, a sharp early-November advance that coincided with the U.S. presidential election was propelled higher through the end of the calendar year by a series of constructive announcements relating to the effectiveness, approval, and distribution of COVID-19 vaccines.

Emerging-market equities outpaced developed markets for the fourth quarter, pushing their full-year performance ahead. U.K. stocks led major developed markets during the quarter, but ended up with a sizeable loss for the 12-month period. European and Japanese stocks followed the U.K. for the quarter, and both delivered positive returns for the full year; Japan fared much better than Europe in 2020. Meanwhile, U.S. stocks had a comparably modest quarter (albeit with a double-digit gain), but had the top major developed-market performance for the year. Sector-level performance was shaken up during the final three months of the year: Energy and financials both had huge rallies after lagging for most of 2020—making them the top performers by a wide margin during the fourth quarter—but still turned in full-year losses.

U.S. Treasury rates generally increased throughout the fourth quarter, with the 10-year Treasury rate rising by more than any other maturity. U.K. and eurozone government-bond rates declined for the fourth quarter. U.K. rates climbed through October and November before dropping sharply across the yield curve in December. Eurozone rates tumbled across the curve in October, but bounced higher during November and had mixed movements in December—resulting in a steeper overall curve.

The approaching end of 2020 forced a scramble of deal-making on both sides of the Atlantic.

U.S. lawmakers struck a deal for $900 billion toward pandemic economic relief and $1.4 trillion in federal government funding, which President Trump signed on December 27. The legislation included the following:

  • Another round of forgivable small-business loans under the Paycheck Protection Program, with a $284 billion appropriation
  • Extended unemployment payments through March 2021 for approximately 12 million Americans that were on the verge of exhausting their benefits, including a $300-per-week supplement to state-level payments
  • Sustained eligibility of unemployment benefits for self-employed, contractors and gig workers, as established under the CARES Act in March 2020
  • Preservation of eviction protections to the end of January 2021 and an appropriation of $25 billion to rent relief

Also included in the legislation were direct economic-relief payments of $600 per person to Americans in households below an income threshold—a payment figure that prompted Trump to withhold his signature for several days in favor of a $2,000 disbursement that passed the House of Representatives but never materialized in the Senate.

Earlier in December, the outcome of the U.S. presidential election was formalized when state-level electors cast their votes in accordance with the certified results of each state’s popular vote, delivering a majority of electoral votes to President-elect Joe Biden. A legal campaign to contest the election results waged by President Trump and his allies was mostly retired at that point, although some Republican members of the U.S. Congress sought to object to the counting of electoral votes in early January as a symbolic gesture.

EU and U.K. negotiators, meanwhile, attained a measure of resolution on Christmas Eve with an agreement governing some terms of their ongoing relationship. The EU-UK Trade and Cooperation Agreement contains many of the top priorities of each party:

  • The EU was able to maintain its single market while avoiding a hard border in Ireland, while the U.K. avoided tariffs and quotas on goods traded with the EU.
  • The EU agreed to reduce its fishing quota within U.K. waters by 25% over the next five years, which will be followed by annual negotiations.
  • Both parties reserved the right to retaliate after judicial review if they believe the other party has tilted the playing field in an anti-competitive manner. The European Court of Justice will not have jurisdiction over trade disagreements.

Trade in services—which includes the financial industry—was not addressed under the scope of the deal, and each party’s citizens will be subject to visa restrictions when working or travelling for an extended period in the other party’s jurisdiction.

The Regional Comprehensive Economic Partnership (RCEP), a free-trade group composed of 15 Asia-Pacific countries including China, was formalized in mid-November. RCEP nations have a combined population of 2.2 billion people and produce about one-third of global gross-domestic product (GDP), representing the most expansive free-trade area on the planet.

A sprawling cyberattack against hundreds of organizations—government agencies, corporations and non-government entities—was discovered in December. The targets were centered largely within the U.S., and several agencies of the federal government reported infiltrations dating as far back as March 2020. Solarwinds Orion software, which is designed to support business technology infrastructure, was the main gateway for the hack apparently perpetrated by Russian intelligence services.

Economic Data

  • U.S. manufacturing growth picked up from a moderately healthy pace in October to stronger levels in November and December. U.S. services sector growth started solidly in October, before heating up in November and then reverting back to still-strong levels in December. New U.S. jobless claims bottomed in mid-November, then climbed until mid-December before retreating through year end. The overall U.S. economy grew at a 33.4% annualized rate during the third quarter after declining by an annualized 31.4% in the second quarter.
  • U.K. manufacturing activity continued to grow at a healthy rate throughout October and November before accelerating in December. The U.K. services sector started the fourth quarter with strong growth that gave way to an outright contraction by November, with activity essentially maintaining pace in December. The overall U.K. economy grew by 16% during the third quarter after falling by 19.8% in the second quarter; the economy shrank by 8.6% year over year through the end of September.
  • Growth in eurozone manufacturing activity remained healthy through October and November before strengthening in December. A contraction in the eurozone services sector deepened from October to November, and then moderated during December. The overall eurozone economy grew by 12.5% during the third quarter after declining by 11.8% in the second quarter; the economy had shrunk by 4.3% year over year through the end of the third quarter.

Major Index Performance in Q4 2020 (Percent Return)

Major Index Performance in Q4 2020 (Percent Return)

Sources: FactSet, Lipper

Central Banks

  • The Federal Open Market Committee (FOMC) made no changes at either its early-November or mid-December meetings. The Federal Reserve’s (Fed) latest summary of economic projections improved over the prior quarter, with expectations for higher economic growth and lower unemployment in 2021 and thereafter. The U.S. central bank planned to extend four emergency lending facilities that were established in March into the New Year—yet also planned to return $455 billion of unused funding for five other lending facilities to the U.S. Department of the Treasury and shutter the facilities at year end. President-elect Biden named former Fed Chair Janet Yellen as his nominee for U.S. Secretary of the Treasury.
  • The Bank of England’s Monetary Policy Committee expanded its quantitative-easing program at its early-November meeting, committing a fresh £150 billion toward bond purchases for a total of £895 billion. There were no additional policy changes at its mid-December meeting. The Committee’s latest quarterly report projected that the U.K. economy would contract by 11% in 2020, a deterioration from the 5.4% contraction estimated a quarter earlier.
  • The European Central Bank (ECB) made no new changes to monetary policy at its late-October meeting. The December meeting produced a decision to increase the scale of asset purchases associated with its Pandemic Emergency Purchase Program (PEPP) by €500 billion for a total of €1.85 trillion. PEPP purchases were also extended through at least early 2022. Additionally, the ECB planned to expand the use of its Pandemic Emergency Longer-Term Refinancing Operations (PELTRO) program, which is designed to promote bank lending through subsidized loans.
  • The Bank of Japan (BOJ) also took no new actions following its late-October and mid-December monetary policy meetings. It will continue to implement all tools associated with its Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control program. Separately, the BOJ extended its crisis-response program’s emergency funding measures by six months.

Fixed-Income Performance in Q4 2020 (Percent Return)

Fixed-Income Performance in Q4 2020 (Percent Return)

Sources: FactSet, Lipper. See “Corresponding Indexes for Fixed-Income Performance Exhibit” in the Index Descriptions section for more information.

Regional Equity Performance in Q4 2020 (Percent Return)

Regional Equity Performance in Q4 2020 (Percent Return)

Sources: FactSet, Lipper. See “Corresponding Indexes for Regional Equity Performance Exhibit” in the Index Descriptions section for more information.

Portfolio Review

The U.S. equity market exploded higher during the fourth quarter, led by small-company stocks that approximately doubled the gains of large-company stocks. Our U.S. large-cap strategies1 performed well during the quarter, delivering absolute returns in line with their benchmarks. Sector allocations were beneficial in aggregate: Overweights to value stocks within the financial sector contributed, while overweights to consumer staples and health care stocks detracted. Stock selection within consumer discretionary also hurt. Our U.S. small-cap strategies generated absolute returns during the quarter that rival some of the best annual returns in recent memory, but trailed in terms of relative performance. A focus on higher-quality and lower-beta stocks detracted, particularly selection in information technology, materials and industrials. Overseas, our international developed-market equity strategy outperformed its benchmark during the quarter. Strong returns from underlying value-oriented strategies were more than enough to offset the challenges from momentum- and stability-oriented strategies as market leadership rotated into value. Our emerging-market equity strategy also outpaced its benchmark, building on the outperformance of emerging markets over the rest of the world during the quarter. Underlying momentum-oriented strategies performed solidly alongside security selection, particularly in China. An underweight to e-commerce companies and positioning within electric-vehicle companies and banks contributed, while stability-oriented strategies detracted.

 

An overweight to the long end of the yield curve detracted from core fixed income’s relative performance with the increase in long-term yields, but an overweight to corporate bonds—concentrated in industrials and financials—contributed.

Our core fixed-income strategy outperformed its benchmark during the fourth quarter as non-government fixed-income sectors led comparable U.S. Treasurys. An overweight to the long end of the yield curve detracted from core fixed income’s relative performance with the increase in long-term yields, but an overweight to corporate bonds—concentrated in industrials and financials—contributed. An overweight to agency mortgage-backed securities (MBS) was modestly positive, and selection in specified mortgage pools contributed as generic security types underperformed. An overweight to asset-backed securities (ABS) was favorable; student loans, its largest allocation in the sector, was particularly beneficial, as was exposure to higher-quality credit card and auto-loan securitizations. A higher-quality bias within commercial MBS (CMBS) detracted from returns as lower-quality tranches continued to outperform. Our high-yield strategy outpaced its benchmark during a strong quarter for the high-yield bond market. An allocation to collateralized loan obligations (CLOs) was the top contributor, followed by an underweight to and selection within media, and an underweight to telecommunications. The top detractors were underweights to energy, retail and leisure. Emerging-market debt also had strong performance in the fourth quarter, and our emerging-market debt strategy outperformed its blended benchmark during the period. An overweight to local-currency assets and an underweight to foreign-currency assets contributed. At the country level, overweights to Mexico, Egypt and South Africa were the top contributors, while underweights to Thailand and Chile were the most significant detractors.

Global Equity Sector Performance in Q4 2020 (Percent Return)

Global Equity Sector Performance in Q4 2020 (Percent Return)

Sources: FactSet, Lipper. MSCI ACWI Index Components (as defined by SEI).

Manager Positioning and Opportunities

The largest active positions in our U.S. large-cap strategies from a sector perspective were an overweight to financials (which appears undervalued) and an underweight to information technology (which appears overvalued). During the quarter, our most significant change was a decreased overweight to healthcare as we added stability-oriented exposure elsewhere. Our small-cap strategies remained overweight the value and stability alpha sources, although we decreased exposure to stability during the quarter. Our international developed-market strategy was slightly overweight Europe and North America due to the variety of bottom-up opportunities in the consumer and technology sectors. Japan was underweight due to structural economic headwinds, while the U.K. was underweight due to reduced weights in the U.K.’s largest sectors. Economic headwinds were the source of the strategy’s underweight to the Pacific ex-Japan region. During the quarter, we added to consumer discretionary and information technology stocks in Europe while trimming exposure to North America. Our emerging-market equity strategy was overweight Taiwan, Brazil and Korea due in large part to information technology, internet consumer services and online retailing exposures. We were underweight China on valuations grounds and due to pockets of slow growth. Saudi Arabia also remained underweight on concerns about the oil market and a lack of near-term growth prospects. We added exposure to Korea, Hungary, and Russia during the quarter, while reducing exposure to China.

Since September, value style equity indexes have outpaced their growth counterparts to varying degrees across geographies and market capitalizations, most notably within U.S. large caps.

With long-term yields remaining near historically low levels, our core fixed-income strategy has been gradually reducing its overweight to the 25-to-30-year segment of the yield curve, while positioning within the 7-to-10-year segment has been increased. The strategy decreased an overweight to corporate bonds—trimming holdings in both industrials and financials—and a small pipeline-focused overweight to energy remained. We’ve increased our allocation to Treasurys concurrent with the reduction in corporates given their liquidity, while longer-term yields have approached the high end of their recent ranges. Overweights to ABS and CMBS remained given their competitive risk-adjusted yields, although there has been selective risk reduction in student loans, and CMBS holdings are focused on higher-quality tranches. We maintained an allocation to non-agency MBS. Our high-yield strategy’s top active position was an allocation to CLOs, which was increased during the fourth quarter. An underweight to telecommunications was also increased, while we maintained an underweight to energy and decreased an overweight to leisure. Our emerging-market debt strategy increased its overweight to local-currency assets and its considerably larger underweight to foreign-currency assets. At the country level, an overweight to Mexico was the strategy’s largest position, followed by an underweight to Philippines and overweight to Egypt. The largest changes during the quarter were increased overweights to Korea and Russia along with a decreased underweight to Turkey.

Our View

We’re all looking forward to a better 2021. From the looks of it, investors have already begun to look beyond the valley.

Recent market chatter has hinted at the notion of a “Great Rotation” in capital markets, suggesting that investors may have begun to favor value and cyclical sectors over growth names. While we have seen some evidence of this, we believe it is too early to tell if this is the beginning of a major secular shift in equity investment themes.

Since September, value style equity indexes have outpaced their growth counterparts to varying degrees across geographies and market capitalizations, most notably within U.S. large caps. We have observed several signs of potential normalization that seem to support the prospects for a style regime change.

  • In October, Treasury yields started to tick up. However, we would be surprised if rates moved sharply higher in 2021.
  • The development of highly effective COVID-19 vaccines has helped investors shake off worries that the pandemic would last indefinitely.
  • Regulatory developments in both the U.S. and abroad have hinted that the dominance of large technology companies may no longer be as straightforward, long-lasting or profitable as some investors have grown accustomed.

Barriers to trade introduce economic inefficiencies. Post-Brexit, U.K. prices will likely move a bit higher, GDP a bit lower and supply chains a bit more unreliable.

No one knows if this shift is, in fact, a Great Rotation, but we think investors will prove willing to shrug off the likely prospect of more bad news during the difficult months that lay ahead, which could include slowdowns or pauses in vaccine manufacturing, distribution, administration and uptake.

Politics will also come into play, and can either act as a tailwind or a headwind. The Congress struggled for months trying to get additional income support to the people and businesses most seriously affected by the economic disruptions caused by the virus. They finally came up with a $900 billion compromise that is limited in scope and falls far short of what is needed. Most of the benefits are set to expire in March and April, and it does not address revenue shortfalls facing state and local governments.

Policy depends on personnel, and there is no disputing the priorities of a Biden administration will be quite different from those of the Trump era. One of the most important nominations put forth by President-elect Biden is that of former Fed Chair Janet Yellen as Treasury Secretary. A close working relationship between the Treasury and the Fed will probably be reassuring for investors in the near term since there is little doubt that the central bank will continue its extraordinary efforts to support the economic recovery in 2021.

Casting our focus across the Atlantic, the last-minute Brexit deal provided a Christmas gift of sorts, at least in terms of removing a degree of uncertainty. While a skinny deal is better than none, the UK’s long period of intense uncertainty continues to a degree, as the deal addressed the transfer of goods but not commerce in services.

Barriers to trade introduce economic inefficiencies. Post-Brexit, U.K. prices will likely move a bit higher, GDP a bit lower and supply chains a bit more unreliable.

Looking at the forward price-to-earnings ratio of the MSCI United Kingdom, MSCI Europe ex-U.K. and the MSCI USA Indexes, we can see that the U.S. market has consistently traded at a premium valuation over the past 15 years.

That premium has widened since 2017 and expanded significantly further in 2020. The other two markets have mostly traded at similar valuations to each other over time—but major divergence began to develop in 2019 and became more pronounced in 2020.

U.K. equity valuations, in our opinion, reflect much of the bad news. Maybe it is time to for investors to think about the things that could go right:

  • First, of course, is the development and distribution of vaccines, which are expected to drive the global economy to higher ground in 2021. This should benefit the large energy, materials and industrial multinationals that make up nearly one-third of the market capitalization of the MSCI United Kingdom Index.
  • The country also appears competitive versus other advanced countries when measured by various benchmarks, such as relative unit labor costs.
  • The government’s trade negotiators have already fanned out across the world to make sure that the U.K. retains the same trade agreements that it has enjoyed as a member of the EU.
  • Prime Minister Boris Johnson has backed away from his attempt to renege on the Withdrawal Agreement that allows Northern Ireland to trade without border restrictions with Ireland and the rest of the EU. This decision saves a lot of headaches, especially with the incoming Biden administration having threatened to impose trade sanctions if the treaty was abrogated.

Like so many other relationships in the equity market, the underperformance of the eurozone benchmark has been going on for a long time. The European economy is more cyclical, value-oriented and less dynamic than the U.S. economy. But that certainly does not prohibit a rebound in performance against the U.S. stock market at a time when the latter appears to be excessively tilted toward technology stocks, the U.S. dollar is weakening and a global economic recovery is at hand.

The pandemic has had one good outcome for Europe. It finally forced Germany and other fiscal “hawks” to allow an expansion in fiscal policy. This move away from budgetary austerity should be viewed in context. Most countries have experienced a sharp rise in red ink this year, and the biggest deficits are outside the eurozone. The Europeans probably can afford to run higher deficits than the International Monetary Fund appears to be penciling in for 2021. Italy almost certainly will. The memory of the European periphery debt crisis is still fresh in the minds of many policymakers who realize that pushing for fiscal austerity measures prematurely would probably be a mistake.

On the other hand, we think there is a greater need for other countries outside the eurozone to regain control of their finances. If those countries fail to do so, Europe could be the beneficiary of investment flows that would further prop up the euro and equity valuations.

Emerging-market equities have been on a tear since they bottomed out last March. For 2020 as a whole, the MSCI Emerging Markets Index (total return) climbed by 18.3%—slightly better than the 15.9% gain registered by the MSCI World Index (total return), which tracks the performance of developed-country stock markets.

However, the MSCI Emerging Markets Index is still just above its previous high-water mark recorded in January 2018. Frontier markets have fared even worse. The MSCI Frontier Emerging Markets Index (total return) has yet to surpass its most recent pre-pandemic high level recorded last January.

Fortunately, not only has the combined firepower of global central banks prevented a liquidity crisis, it has also driven borrowing costs down to near-record lows even as total emerging-market debt exceeds 200% of GDP. Only two problem debtors—Argentina and Turkey—had to increase their interest rates in recent months to stem investment outflows. As the world returns to normal, other nations may need to raise rates in order to attract sufficient investment inflows to sustain their fiscal and current-account positions.

A weak U.S. dollar is an important catalyst for emerging-markets performance. Although the currency has weakened meaningfully this year and pushed emerging-market equities higher, the performance of emerging markets relative to developed markets has been in a narrow range. We expect the coming year will see emerging equities’ relative performance improve, partly because the U.S. dollar should continue to weaken.

If the world economy enjoys a durable cyclical recovery in 2021, the dollar should continue to fall. This would also bolster the rebound in commodity prices. Commodities of all sorts have been moving sharply higher since the spring, with metals, raw industrials and foodstuffs rallying together for the first time since the 2009-to-2011 period.

Signs of a recovery should continue to reveal themselves as COVID-19 abates and economic activity normalizes. In the meantime, fiscal spending and accommodative central-bank policy should prop up inflation. As the market prices in these developments, “long-duration” growth and expensive high-profitability stocks should be pressured—while momentum investors are likely to rotate into new themes, potentially adding more fuel to this nascent cyclical rally.

1Individual holdings will differ between strategies. Not representative of our passive strategies.

Glossary of Financial Terms

  • Bear market: A bear market refers to a market environment in which prices are generally falling (or are expected to fall) and investor confidence is low.
  • Bull market: A bull market refers to a market environment in which prices are generally rising (or are expected to rise) and investor confidence is high.
  • Fiscal policy: Fiscal policy relates to decisions about government revenues and outlays, like taxation and economic stimulus.
  • Fiscal stimulus: Fiscal stimulus refers to government spending intended to provide economic support.
  • Monetary policy: Monetary policy relates to decisions by central banks to influence the amount of money and credit in the economy by managing the level of benchmark interest rates and the purchase or sale of securities. Central banks typically make policy decisions based on their mandates to target specific levels or ranges for inflation and employment.
  • Pandemic Emergency Longer-Term Refinancing Operations (PELTROs): PELTROs are a series of longer-term refinancing operations intended by the ECB to ensure sufficient liquidity and smooth money market conditions during the COVID-19 pandemic period. PELTRO operations are planned to be allotted on a near-monthly basis maturing in the third quarter of 2021.
  • Pandemic Emergency Purchase Program (PEPP): PEPP is a temporary asset purchase program of private and public sector securities established by the ECB to counter the risks to monetary policy transmission and the outlook for the euro area posed by the COVID-19 outbreak.
  • Paycheck Protection Program: The Paycheck Protection Program is a loan offer by the U.S. government’s Small Business Administration (SBA) designed to provide a direct incentive for small businesses to keep their workers on the payroll. SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities.
  • Quantitative easing: Quantitative easing refers to expansionary efforts by central banks to help increase the supply of money in the economy.

 

Index and Benchmark Descriptions

All indexes are quoted in gross performance unless otherwise indicated.

  • 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.
  • The Bloomberg Barclays US Asset Backed Securities (ABS) Index measures the performance of ABS with the following collateral types: credit and charge card, auto and utility loans. All securities have an average life of at least one year.
  • The Bloomberg Barclays Global Aggregate Index is an unmanaged market-capitalization-weighted benchmark, tracks the performance of investment-grade fixed-income securities denominated in 13 currencies. The Index reflects reinvestment of all distributions and changes in market prices.
  • The Bloomberg Barclays Global Aggregate ex-Treasury Index is an unmanaged market index representative of the total-return performance of ex-Treasury major world bond markets.
  • The Bloomberg Barclays Global Treasury Index is composed of those securities included in the Bloomberg Barclays Global Aggregate Bond Index that are Treasury securities.
  • The Bloomberg Barclays US Corporate Bond Index is a broad-based benchmark that measures the investment-grade, fixed-rate, taxable corporate bond market.
  • The Bloomberg Barclays US Mortgage Backed Securities (MBS) Index measures the performance of investment-grade, fixed-rate, mortgage-backed, pass-through securities of Government National Mortgage Association (GNMA), Federal National Mortgage Association (FNMA) and Freddie Mac (FHLMC).
  • The Bloomberg Barclays US Treasury Index is an unmanaged index composed of U.S. Treasurys.
  • The ICE BofA U.S. High Yield Constrained Index contains all securities in The ICE BofA U.S. High Yield Index but caps exposure to individual issuers at 2%.
  • The ICE BofA U.S. High Yield Index tracks the performance of below-investment-grade, U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market.
  • The Chicago Board Options Exchange Volatility Index (VIX) tracks the expected volatility in the S&P 500 Index over the next 30 days. A higher number indicates greater volatility.
  • CBOE Volatility Index (VIX Index): The VIX Index tracks the expected volatility in the S&P 500 Index over the next 30 days. A higher number indicates greater volatility.
  • The Dow Jones Industrial Average is a widely followed market indicator based on a price-weighted average of 30 blue-chip New York Stock Exchange stocks that are selected by editors of The Wall Street Journal.
  • The FTSE All-Share Index represents 98% to 99% of U.K. equity market capitalization. The Index aggregates the FTSE 100, FTSE 250 and FTSE Small Cap Indexes.
  • 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 tracks the performance of debt instruments issued in domestic currencies by emerging-market governments.
  • The MSCI ACWI Index is a market-capitalization-weighted index composed of over 2,000 companies, representing the market structure of 48 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.
  • The MSCI ACWI ex-USA Index includes both developed- and emerging-market countries, excluding the U.S.
  • The MSCI Emerging Markets Index is a free float-adjusted market-capitalization-weighted index designed to measure the performance of global emerging-market equities.
  • The MSCI Emerging Markets Latin America Index captures large- and mid-cap representation across five emerging-market countries in Latin America.
  • The MSCI EMU (European Economic and Monetary Union) Index is a free float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of countries within EMU. The Index consists of the following 10 developed-market country indexes: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Netherlands, Portugal and Spain.
  • The MSCI Europe ex-UK Index is a free float-adjusted market-capitalization-weighted index that captures large- and mid-cap representation across 14 developed-market countries in Europe (Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden and Switzerland). The Index covers approximately 85% of the free float-adjusted market capitalization across European developed markets excluding the U.K.
  • The MSCI Pacific ex Japan Index captures large- and mid-cap representation across four of five developed-market countries in the Pacific region (excluding Japan).
  • The MSCI Japan Index is designed to measure the performance of the large- and mid-capitalization stocks in Japan.
  • MSCI United Kingdom Index is designed to measure the performance of the large- and mid-cap segments of the U.K. market.
  • MSCI USA Index is designed to measure the performance of the large- and mid-cap segments of the U.S. market.
  • The MSCI World Index is a free float-adjusted market-capitalization-weighted index designed to measure the equity market performance of developed markets. The Index consists of the following 23 developed-market country indexes: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the U.K. and the U.S.
  • The MSCI World ex-USA Index is a free float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed markets, excluding the U.S.
  • The NASDAQ Composite Index is a market-value-weighted index of all common stocks listed on the National Association of Securities Dealers Automated Quotations (NASDAQ) system.
  • Russell 1000 Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000 Index companies with higher price-to-book ratios and higher forecasted growth values.
  • The Russell 1000 Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 Index companies with lower price-to-book ratios and lower expected growth values.
  • The Shenzhen Stock Exchange Composite Index tracks performance of A share stocks (which are denominated in renminbi, the local currency) and B share stocks (which are denominated in Hong Kong dollars, an offshore currency) on China’s Shenzhen Stock Exchange.
  • The S&P 500 Index is an unmanaged market-capitalization-weighted index comprising 500 of the largest publicly-traded U.S. companies and is considered representative of the broad U.S. stock market.
  • The TOPIX, also known as the Tokyo Stock Price Index, is a capitalization-weighted index of all companies listed on the First Section of the Tokyo Stock Exchange. The Index is supplemented by the subindexes of the 33 industry sectors. The Index calculation excludes temporary issues and preferred stocks, and has a base value of 100 as of January 4, 1968.

Corresponding Indexes for Fixed-Income Performance Exhibit

U.S. High Yield - ICE BofA U.S. High Yield Constrained Index
Global Sovereigns - Bloomberg Barclays Global Treasury Index
Global Non-Government - Bloomberg Barclays Global Aggregate ex-Treasury Index
Emerging Markets (Local) - JPMorgan GBI-EM Global Diversified Index
Emerging Markets (External) - JPMorgan EMBI Global Diversified Index
U.S. Mortgage-Backed Securities (MBS) - Bloomberg Barclays US Mortgage Backed Securities Index
U.S. Asset-Backed Securities (ABS) - Bloomberg Barclays US Asset Backed Securities Index
U.S. Treasurys - Bloomberg Barclays US Treasury Index
U.S. Treasury Inflation-Protected Securities (TIPS) - Bloomberg Barclays 1-10 Year US TIPS Index
U.S. Investment-Grade Corporates - Bloomberg Barclays US Corporate Bond Index
 

Corresponding Indexes for Regional Equity Performance Exhibit

United States - S&P 500 Index
United Kingdom - FTSE All-Share Index
Pacific ex Japan - MSCI Pacific ex Japan Index (Net)
Japan - TOPIX, also known as the Tokyo Stock Price Index
Europe ex U.K. - MSCI Europe ex UK Index (Net)
EM Latin America - MSCI Emerging Markets Latin America Index (Net)

Legal Note

Disclosures

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 regarding SEI’s portfolios or any stock in particular, nor should it be construed as a recommendation to purchase or sell a security, including futures contracts.

There are risks involved with investing, including loss of principal. International investments may involve risk of capital loss from unfavorable 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 as well as increased volatility and lower trading volume. Narrowly focused investments and smaller companies typically exhibit higher volatility. Bonds and bond funds will decrease in value as interest rates rise. High-yield bonds involve greater risks of default or downgrade and are more volatile than investment-grade securities, due to the speculative nature of their investments.

Diversification may not protect against market risk. Past performance does not guarantee future results. 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.

Information provided by SEI Investments Management Corporation, a wholly owned subsidiary of SEI Investments Company (SEI).