Commentary - June 2016

• The U.K. has voted to leave the European Union.
• As expected, the market reacted negatively and we expect a lengthy transition period.
• Despite this backdrop, we believe now is not a time to panic; we believe our diversified approach should serve investors well, and we remain diligent in evaluating future investment opportunities as financial markets react to the news.

On 23 June, Britain took to the polls and voted to leave the European Union (EU) in a referendum that was too close to call ahead of the vote. With polls in flux ahead of the vote, we believe our consistent and diversified investment approach was more rational than betting on either “Remain” or “Leave”.

Markets React

Leading up to the vote there was a fair amount of volatility as investors vacillated between risk taking and risk aversion depending on the results of the latest polls.

As generally expected, equities reacted negatively with U.K. equities falling approximately 6.4% (as measured by the FTSE 100 Index)[1]. Global equities declined as well, albeit in a more muted fashion, with Europe and Japan leading the other regions down. Bond markets, many of which already had yields hovering at historically low levels, saw yields fall even further as investors continued the pre-Brexit move of selling U.K. stocks and buying U.K. government bonds. Sterling and euro fell versus the U.S. dollar. In strategies that allow for active currency positioning, SEI held an overweight U.S. dollar versus underweight euro position, which has performed positively¹ and served to partially hedge some of the Brexit risks.

Negative sentiment and associated volatility could linger across financial markets, which might actually provide attractive investment opportunities. Markets should eventually settle down after the initial “Leave” shock has worn off and investors begin to focus on the U.K.’s transition out of the EU.

The (Lengthy) Transition

In evaluating the repercussions of Brexit, investors must understand the lengthy time frame needed for such a transition to take place and also that nothing at this point is certain. While no country has left the EU in its 25 year history, Greenland’s 1985 exit from the European Economic Community (a precursor to the EU) took three years to negotiate. Still, the U.K. government must act promptly to negotiate new trade agreements with the EU, its single largest trading partner. According to the Treaty of European Union (Article 50), parties involved are granted a two-year deliberation period, which would be triggered by a formal notification, in which agreements must be made unless both parties agree to extend the time frame. These negotiations, should they fail to progress in a promising fashion, could impose a second shock on the U.K. economy around 2017-2018.

Political Uncertainty

With complex negotiations ahead, one important question that remains is who will lead them on behalf of Britain. In the wake of the outcome of the referendum David Cameron, the effective leader of the ”Remain” campaign, has announced his resignation as Prime Minister, signalling his intent to stay on until October to help guide the country through the initial post-referendum period. This power vacuum and added uncertainty may cause further unrest in the markets, at least over the short term.

Our Strategic Portfolio Positioning

We build diversified Strategic Portfolios (the “Funds”) that are designed to meet a range of investor goals and as such, positioning is largely strategic in nature with tactical positions (where applicable) intended to generate alpha over shorter time periods.

Our stability-focused Funds may be appropriate for investors who have a shorter time horizon or more conservative needs. These Funds use defensive equities in the form of the global managed volatility asset class and the global short duration fixed income asset class, which may provide an element of downside protection in the event of any market turbulence and help with capital preservation, respectively.

Our growth-focused Funds take a longer term view consistent with longer investment goals and therefore are relatively neutral to their strategic asset allocation targets at this point.[2]

We continue to maintain an active underweight position in the euro versus the U.S. dollar and we expect this position to benefit from potential weakening of the euro in the aftermath of the Brexit vote. With the short-term dislocations created by the decision to leave, we expect there may be opportunities for more active positioning and we are diligently monitoring the prospects.

Our Market View

We could see continued weakness in sterling and the euro versus the U.S. dollar, which could have mixed results for the U.K. economy. It might help some companies to increase exports to the rest of the world, but this could be offset by increased uncertainty and reduced levels of investment. The previous year’s weakening of sterling likely implies rising import costs, while a broad-based depreciation of the currency would likely boost inflation. The impact on gross domestic product growth is difficult to predict with precision, but we firmly believe it will result in slower growth over time. The remaining members of the EU could face similar challenges but to a lesser degree.

Fund Risks

The investment risks described below are not exhaustive and potential investors should carefully review the Prospectus prior to investing. The risks described below may apply to the underlying assets of the products into which they invest.

o    Investment in equity securities in general are subject to market risks that may cause their prices to fluctuate over time.

o    Fixed income securities are subject to credit risk and may also be subject to price volatility and may be sensitive to interest rate fluctuations.

o    Absolute return investments utilise aggressive investment techniques which may increase the volatility of returns. If the correlation between absolute return investments and other asset classes within the fund increases, absolute return investments’ expected diversification benefits may be decreased.

This material is not directed to any persons where (by reason of that person's nationality, residence or otherwise) the publication or availability of this material is prohibited. Persons in respect of whom such prohibitions apply must not rely on this information in any respect whatsoever. Investment in the funds or products that are described herein are available only to intended recipients and this communication must not be relied upon or acted upon by anyone who is not an intended recipient.

While considerable care has been taken to ensure the information contained within this document is accurate and up-to-date, no warranty is given as to the accuracy or completeness of any information and no liability is accepted for any errors or omissions in such information or any action taken on the basis of this information.

SEI Investments (Europe) Limited (“SIEL”) acts as distributor of collective investment schemes which are authorised in Ireland pursuant to the UCITS regulations and which are collectively referred to as the “SEI Funds” in these materials. These umbrella funds are incorporated in Ireland as limited liability investment companies and are managed by SEI Investments Global, Limited, an affiliate of the distributor. SIEL utilises the SEI Funds in its asset management programme to create asset allocation strategies for its clients. Any reference in this document to any SEI Funds should not be construed as a recommendation to buy or sell these securities or to engage in any related investment management services. Recipients of this information who intend to apply for shares in any SEI Fund are reminded that any such application must be made solely on the basis of the information contained in the Prospectus (which includes a schedule of fees and charges and maximum commission available). Commissions and incentives may be paid and if so, would be included in the overall costs. A copy of the Prospectus can be obtained by contacting your Financial Advisor, SEI Relationship Manager or by using the contact details shown below.

Past performance is not a guarantee of future performance. Investments in SEI Funds are generally medium to long term investments. The value of an investment and any income from it can go down as well as up. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. Investors may not get back the original amount invested. SEI Funds may use derivative instruments which may be used for hedging purposes and/or investment purposes. 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.

The SEI Strategic Portfolios are a series of the SEI Funds and may invest in a combination of other SEI and Third-Party Funds as well as in additional manager pools based on asset classes. These manager pools are pools of assets from the respective Strategic Portfolio separately managed by Portfolio Managers which are monitored by SEI. One cannot directly invest in these manager pools.

This information is issued by SIEL 1st Floor, Alphabeta, 14-18 Finsbury Square, London EC2A 1BR. This document and its contents are directed only at persons who have been categorised by SIEL as a Professional Client for the purposes of the FCA Conduct of Business Sourcebook. SIEL is authorised and regulated by the Financial Conduct Authority.

SEI sources data directly from Factset, Lipper, and BlackRock.

Please see the current Fund fact sheets for the most recent tactical asset allocation targets, which more accurately reflect the current allocations of the Funds.[2]
As of 8.40am on 24th June 2016[1]