Overview

SEI has updated the strategic asset allocations within a number of its strategies. These changes reflect an effort to achieve a more consistent risk profile across all of SEI’s portfolios. When evaluating these changes, it is important to view them in terms of the total portfolio rather than one-for-one or paired asset swaps. There are several themes associated with these changes:

Reduce Home Country Bias in Equities

• Many investors favour equities listed in their home country over those listed internationally, however this preference generally impairs diversification and can lead to lower risk-adjusted returns for the portfolio.
• Our changes reduce an existing bias toward Canadian equities with the goal of providing enhanced global diversification of our equity exposures and improving the efficiency of the portfolios.
• By focusing on global equities over Canadian equities we have a significant opportunity to achieve greater diversification both in terms of sector exposures and in the number of stocks held in the portfolios.
• Even after the reduction, portfolio exposure to Canadian equities remains meaningfully higher than the market capitalization-weight in a global index such as the MSCI ACWI Index, which is approximately 3%.

Broaden use of Global Managed Volatility

• The tendency of low-volatility stocks to exhibit higher risk-adjusted returns than their higher-volatility counterparts has been demonstrated extensively in literature.
• We have a long track record of management of managed volatility portfolios across the globe, including in Canada.
• The use of global managed volatility has been significantly expanded across a variety of portfolios.
•  At the portfolio level, the expectation of equity-like returns with meaningfully less volatility proves valuable in any context in terms of risk-adjusted return potential.

Short-Term Bonds versus Core Fixed Income

• In certain portfolios, allocations to short-term bonds are being reduced and allocations to core fixed income are being increased.
• This in conjunction with the broadened use of global managed volatility in equities allows SEI to maintain a similar risk profile at the portfolio level.
• While short-term bonds are a valuable component that help lower risk in stability-focused portfolios, core fixed income is a more effective diversifier of the equity risk that dominates most portfolios.

Adjustment to U.S. High-Yield and Real-Return Bond Allocations

• We believe that a moderate allocation to high-yield bonds further diversifies portfolios and may increase risk-adjusted returns. However, given the relative concentration of the market (both in terms of sectors and issuers), there is a point at which portfolio efficiency can be improved by limiting the high-yield exposure and achieving a similar risk profile by pairing diversified exposures to both stocks and investment-grade bonds.
• We view real-return bonds as one of very few sources of protection against unexpectedly high inflation, a major risk for almost all investor types. Nominal bonds, given their fixed payment structure, are obviously exposed to inflation risk, but even equities can lose significant value in the event that inflation becomes untethered and proves damaging to the real economy.
• Allocations to U.S. high-yield and real-return bonds are being more closely aligned to portfolio risk profiles. This results in an increased allocation in some portfolios and a reduction in others.

Background

SEI has a dedicated Portfolio Strategies Group that researches and regularly reviews capital market assumptions (CMAs) based on the team’s macroeconomic research. This Group is responsible for building SEI’s asset allocation models and strategies. As the Group reviews asset classes and updates long-term risk and return characteristics, changes are made to the selection and allocation of a range of asset classes within SEI’s models and strategies to improve efficiency. SEI offers a variety of asset allocation funds spanning a broad risk-return spectrum, allowing investors to participate in different levels of returns commensurate with different levels of risk. SEI selects and allocates to several asset classes in its Funds, aiming to build diversified portfolios that efficiently generate returns within a specific risk tolerance. SEI develops proprietary CMAs for its asset classes based on quantitative analysis and the qualitative judgment of the Portfolio Strategies Group. The Group employs various historical and forward-looking techniques in developing its CMAs and then uses its CMAs to determine asset allocation within SEI’s models and strategies.

SEI Investments Canada Company, a wholly owned subsidiary of SEI Investments Company, is the Manager of the SEI Funds and the SEI Portfolios, an asset allocation service, in Canada. The percentage weightings of the Underlying Funds may be changed from time to time at the Manager’s discretion. The portfolio managers or the allocations of assets to a particular portfolio manager within a Fund are subject to change from time to time at the Manager’s discretion.

The information contained herein is for general information purposes only and is not intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment. 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 information should not be relied upon by the reader as research or investment advice regarding the Funds or any stock in particular, nor should it be construed as a recommendation to purchase or sell a security, including futures contracts. 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. There is no assurance as of the date of this material that the securities mentioned remain in or out of the Funds of Portfolios.

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.

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.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments and the use of an asset allocation service such as the SEI Portfolios. Please read the prospectus of the SEI Funds and the Underlying Funds in which investment may be made under the SEI Portfolios before investing. Mutual fund securities are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer, they are not guaranteed. There can be no assurances that a money market fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Mutual fund values change frequently and past performance may not be repeated.