Hewitt Resources

Investment Update Regarding Recent Market Volatility

The past few weeks have been challenging for market participants, as uncertainty has led to
high market volatility and increasing investor anxiety. Doubts have grown about the ability of the
Greek government to pay its debts, and fears of contagion to other debt-laden countries in
peripheral Europe have escalated as well.1 To add further fuel to the fire, the Dow Jones
Industrial Average plunged nearly 1,000 points intra-day on May 6 before recovering
significantly, ending the day down just over 300 points. This drop was significant, but it appears
the 1,000-point intra-day sell-off may be linked to a single trading error or issues with automated
trading systems.
Our View
In SEI's view, a market correction is not unexpected. In the past 12 months, both equity and
fixed-income markets, as measured by the MSCI AC World Index and Barclays Capital Global
Aggregate Bond Index, have increased dramatically off the lows reached during the 2008
financial crisis. For the one-year period ending April 30, these indexes have gained 39.3% and
9.26%, respectively. Although the global economy has begun its recovery, growth remains
varied among regions but mostly slow due to weak labor markets. We expected the emerging
markets to lead the world out of the recession, which has been largely the case thus far, and we
believe the U.S. should continue its return to a healthy pace of economic output over the next
few years. Risks to our view include the ongoing sovereign debt crisis in peripheral Europe,
monetary policy tightening in high-growth areas such as China and India, as well as domestic
issues such as higher taxes and increased regulation.2
SEI Fund Positioning
Coming out of the market downturn, SEI implemented enhancements to our investment process
that involved incorporating forward-looking expectations of the economic cycle into our portfolio-
construction process. This process includes increasing weightings at the margins of our
diversified manager-of-managers Funds to investment managers whose skill sets are believed
to perform particularly well during certain market environments. As stated earlier, we believe
that the securities that benefited most during the initial recovery in 2009 would not be the same
ones to lead as the recovery matures. In response, we began transitioning many of our equity
portfolios to increase allocations toward high-quality stocks at the beginning of this year in
anticipation of changing market dynamics. The ability to tilt our portfolios in accordance with
where we believe the global markets and economy are headed is intended to produce
consistent returns for investors. After the events of this past week, we are confident that our
enhancements are providing the intended results. An overview follows regarding how each of
SEI's major asset classes is positioned:


In our equity portfolios, we have generally been underweight to areas of concern, such as
country exposures to peripheral Europe and sector exposures such as Financials. We believe
that our portfolios' lower beta may help to better withstand the effects of a market pul -back. We
have increased defensive positioning by allocating more to higher-quality stocks as the market
rally matures. These types of companies normally fare better in periods of downward market
pressure because they have less debt and more market share. In addition, our managed-
volatility portfolios are designed to reduce downside market capture and, as demonstrated in
2008, continue to provide investors with equity exposure while limiting downside risk. During the
volatile trading events on May 6, the SIMT U.S. Managed Volatility Fund fell less than the
Russell 3000 Index, demonstrating its defensive nature.3

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In our global fixed-income portfolios, we are generally underweight to both the euro and debt
issued by the eurozone. Additionally, our direct exposure to Greece as of April 30, 2010 is
limited--less than 1% in most cases. As global spreads have tightened over the past year, we
have used this opportunity to reduce risk in our fixed-income portfolios.



In our alternative investment portfolios, we have the ability to implement tactical levers to take
advantage of higher volatility over the short term. By including these strategies, we intend to
exploit market dislocations during periods of uncertainty in the markets.

Summary
SEI believes that the best approach to investing is one that focuses on diversified portfolios
designed to provide consistent returns over a certain time horizon in accordance with an
investor's risk profile. Our investment professionals pride themselves on constructing portfolios
that include a broad array of securities and underlying investment managers. Our strategies are
further diversified through a composition of a variety of asset classes based on long-term capital
market assumptions. We continue to monitor day-to-day events, but weekly, monthly and even
quarterly market movements are often little more than noise for a portfolio that has a time
horizon of five years or longer.
In short, SEI believes it is important for long-term investors to be patient when faced with panic-
inducing headlines. If investment time horizons are measured in years, it does no good to worry
about day-to-day reports of doom and gloom. As the current crisis continues to mend, we
believe some of the best defenses investors have at their disposal may be diversified
investment portfolios.


Ishan Goraydiya is passionate writer and loves writing about Retirement and Financial Planning.
These days he is writing on Hewitt Resources.

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