Advisor Flipbooks

18 Portfolio construction Multiple layers of diversification 4. Portfolios consist of multiple layers of diversification designed to optimize return while managing risk. The number and variety of investment choices keep growing all the time. Each market and segment possesses different characteristics, return potential, and risks. SEI believes that division of assets is only the beginning of the asset allocation story. Success requires diversifying the entire portfolio structure, using a five-level approach: Level 1 – Asset classes like equity and income-generating securities, such as bonds Level 2 – Of multiple sub-asset classes and styles like large cap, small cap, growth, and value Level 3 – The geographic diversification of our portfolios Level 4 – Individual managers, each a specialist in a particular asset class or style Level 5 – The individual securities selected for each portfolio by those managers SEI also continuously reviews the portion of each portfolio assigned to each independent investment manager. How SEI diversifies Just as SEI periodically reviews and potentially changes the ratio of stocks, bonds, and cash inside a portfolio, they also continuously review the asset levels they assign to each independent investment manager inside each strategy. They identify sources of returns across equity, fixed-income, and alternative-investment portfolios. SEI looks for sources of return that have demonstrated staying power over the long term across multiple markets in a given geographic region. This allows them to create portfolios that are not simply diversified between equity and fixed-income strategies, but are also diversified across sub-asset classes—the underlying drivers of managers' returns. U.S. stocks – 42% U.S. bonds – 29% International stocks – 18% Cash – 1% International bonds – 10% 5 Asset classes 11 Sub-asset classes 98 Countries 49 Managers 8,745 Individual securities Sample for illustrative purposes only. Diversification may not protect against market risk.

• Cover