Do The SEI Funds Add Value for Investors?
November 17, 2015
by Larry Swedroe
The previous installment in my series evaluating the performance of the market’s most prominent
actively managed mutual fund families focused on Russell, one of the largest players in the world of
investment consulting (where firms provide guidance to pension plans and other institutional investors,
as well as to investment advisors, on picking the best active managers). Today, we’ll turn our attention
to Russell’s largest competitor in the consulting field, SEI.
Morningstar reports that, as of July 31, 2015, SEI’s mutual funds had $91 billion in assets under
management, up from $57 billion in 2011. That’s almost twice Russell’s assets of $47 billion. As is the
case with Russell, because of its role as a consultant, the impact SEI has on investors goes well
beyond the returns of its mutual funds.
For example, in August 2015, SEI announced that their TAMP (Turnkey Asset Management Provider)
business, which supports investment advisors, had reached $50 billion in assets under management.
In addition, SEI’s website states that, at year-end 2014, its institutional group had $75 billion in assets
under management, making the company one of the largest fiduciary managers worldwide.
In describing the resources at its disposal, SEI notes that its employs more than 320 professionals
located in seven countries. Its institutional clients are supported by nearly 50 client portfolio
managers/directors averaging 20-plus years of experience. In addition, SEI has nearly 100 investment
professionals performing research, due diligence and implementing client portfolio investment changes
and allocations.
With all of these resources, and with assets under management approaching $100 billion, you’d expect
to see some outstanding performance.
My review begins with a look at how SEI ranked in Barron’s annual list of best-performing mutual fund
families. For the latest 10-year period, SEI ranked 44th out of 48 fund families. The performance over
the latest five-year period was somewhat better with a ranking of 31 out of 56 fund families. And in the
one-year rankings, which are based on 2014 performance, the firm placed 4th out of 65 fund families,
though one-year performance should be treated as anecdotal in nature.
As is my practice, in order to see how well SEI’s funds have performed for their investors, I will
compare the results of their actively managed equity funds to the similar offerings from two prominent
providers of passively managed funds, Dimensional Fund Advisors (DFA) and Vanguard. (Full
disclosure: My firm, Buckingham, recommends DFA funds in constructing client portfolios.)
Page 1, ©2017 Advisor Perspectives, Inc. All rights reserved.
disclosure: My firm, Buckingham, recommends DFA funds in constructing client portfolios.)
To keep the list to a manageable number of funds, and to ensure that I examine long-term results
through full economic cycles, we’ll analyze the 15-year period ending June 30, 2015. Furthermore,
when there is more than one class of fund available, I will use the lowest-cost shares that were
obtainable for the entire period. In cases where SEI has more than one fund in an asset class, the
average return of those funds is used in the comparison.
The table below shows performance data for 11 funds offered by SEI in seven domestic asset classes
and two international asset classes. Funds are placed in a given asset class based on Morningstar’s
investment style categorization.
July 2000-June 2015
Page 2, ©2017 Advisor Perspectives, Inc. All rights reserved.
Fund
SymbolExpense Ratio (%)Annualized Return (%)
U.S. Large Cap Blend
SEI Large Cap
SLCAX 0.18
4.5
SEI S&P 500 Index
TRQIX 0.25
4.1
SEI Tax Managed Large Cap
TMLCX 0.89
3.8
0.44
4.1
DFA U.S. Large Company Portfolio
DFUSX 0.08
4.3
Vanguard 500 Index Fund
VFINX 0.17
4.2
SEI Large Cap Growth
SELCX 0.89
1.0
Vanguard Growth Index Fund
VIGIX 0.08
3.3
SEI Large Cap Value
TRMVX 0.89
6.6
DFA U.S. Large Cap Value III Portfolio
DFUVX 0.13
9.3
Vanguard Value Index Fund
VIVIX
0.08
6.0
SEI Small Cap
SLPAX 0.47
7.0
DFA U.S. Small Cap Portfolio
DFSTX 0.37
9.3
Vanguard Small Cap Index Fund
VSCIX 0.08
8.5
SEI Average
U.S. Large Growth
U.S. Large Value
U.S. Small Blend
U.S. Small Cap Growth
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U.S. Small Cap Growth
SEI Small Cap Growth
SSCGX 1.11
2.8
Vanguard Small Cap Growth Index Fund
VSGIX 0.08
8.6
SEI Small Cap Value
SESVX 1.14
9.8
DFA U.S. Small Cap Value Portfolio
DFSVX 0.52
11.4
Vanguard Small Cap Value Index Fund
VSIIX
10.5
U.S. Small Value
0.08
U.S. Mid Cap Blend
SEI Mid Cap
SEMCX0.98
8.6
Vanguard Mid Cap Index Fund
VMCIX 0.08
9.3
SEI International Equity
SEITX 1.25
0.8
DFA Large Cap International Portfolio
DFALX 0.28
3.4
Vanguard Developed Markets Index Fund
VTMGX0.09
3.3
SEI Emerging Markets Equity
SIEMX 1.74
5.4
DFA Emerging Markets Portfolio
DFEMX 0.56
8.3
Vanguard Emerging Markets Stock Index FundVEMIX 0.12
8.2
International Large Blend
Emerging Markets
The following is a synopsis of the most important takeaways from this data:
In each of the six asset classes for which there are comparable DFA funds, the SEI funds failed
to outperform.
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In eight of the nine asset classes for which there are comparable funds from Vanguard, the SEI
funds failed to outperform.
A portfolio of SEI funds, equal-weighted in the six asset classes for which there are comparable
DFA funds, returned 5.6% a year. The average expense ratio was 0.99%. An equal-weighted
portfolio of DFA funds in the same six asset classes returned 7.6% a year, outperforming the
comparable SEI portfolio by 2.0 percentage points a year. The DFA portfolio’s average expense
ratio was 0.23%. The underperformance of the SEI portfolio was well in excess of the difference
(0.76 percentage points) in the average expense ratios.
In the nine asset classes for which comparable Vanguard funds are available, an equal-weighted
portfolio of SEI funds returned 5.1% a year. The average expense ratio was 0.99%. An equalweighted portfolio of Vanguard funds in the same nine asset classes returned 6.9% a year,
outperforming the comparable SEI portfolio by 1.8 percentage points a year. The Vanguard
portfolio’s average expense ratio was 0.10%. Again, the underperformance of the SEI portfolio
was greater than the difference (0.89 percentage points) in the average expense ratios.
Factor analysis
I’ll now take another look at the performance of the nine domestic funds from SEI included above using
the analytical tools and data available at Portfolio Visualizer.
Factor analysis provides important additional insights into a fund’s performance because Morningstar
asset class categories are very broad and actively managed funds often style drift.
The table below shows the results of the three-factor (beta, size and value), four-factor (adding
momentum) and six-factor (adding quality and low beta) analysis for the firm’s U.S. funds. The data
covers the period from July 2000 through June 2015. Each t-stat is in parentheses.
July 2000-June 2015
Page 5, ©2017 Advisor Perspectives, Inc. All rights reserved.
Fund
SEI Large Cap
SEI S&P 500 Index
Symbol
Three-Factor Annual
Alpha (%)
Four-Factor Annual
Alpha (%)
Six-Factor Annual
Alpha (%)
-2.9
-2.9
-3.7
(-1.8)
(1.8)
(-2.2)
-0.3
-0.1
-0.9
(-0.8)
(-0.4)
(-1.0)
1.0
1.7
-1.0
(0.10)
(0.2)
(-0.1)
-1.7
-1.9
-1.5
(0.1)
(-2.3)
(-1.8)
0.4
0.6
-0.8
(0.5)
(0.7)
(-1.0)
-3.9
-4.0
-4.3
(-2.2)
(-2.3)
(-2.3)
-2.7
-3.7
-1.7
(-1.6)
(-2.4)
(-1.1)
0.6
0.1
-2.3
(0.5)
(0.1)
(-2.2)
1.8
1.0
0.0
(1.5)
(0.9)
(0.0)
-0.9
-1.0
-1.8
SLCAX
TRQIX
SEI Tax Managed
Large Cap
TMLCX
SEI Large Cap
Growth
SELCX
SEI Large Cap Value TRMVX
SEI Small Cap
SEI Small Cap
Growth
SLPAX
SSCGX
SEI Small Cap Value SESVX
SEI Mid Cap
Average Alpha
SEMCX
When we examine the results from the three-factor analysis, we find that four of nine SEI funds
generated positive alphas, with the average annual alpha being negative 0.9%. Only one of the nine
Page 6, ©2017 Advisor Perspectives, Inc. All rights reserved.
funds showed statistically significant alpha at the 5% level, and it was negative.
When we look at results from the four-factor analysis, we again find that four of the SEI funds
generated positive alphas. The average alpha, however, was negative 1.0%. Three of the nine funds
showed statistically significant alpha at the 5% level, and all three were negative.
When we include all six factors in our analysis, the results are worse. None of the nine funds showed a
positive alpha (although one fund had a 0.0 alpha). Eight of the nine funds showed negative alphas,
three of which were statistically significant at the five% level. The average annual alpha was negative
1.8%.
Whether one compares SEI’s results to passively managed funds in the same asset class or examines
the results from the factor analysis, there is no evidence that, despite all the efforts and resources the
firm expends, its investors were receiving added value. In fact, SEI was negatively affecting the
probability that its investors would achieve their goals. Simply put, its investors would have been better
served by choosing lower-cost (and likely more tax efficient) passively managed alternatives.
There are two more important points to consider. All of the above data is based on pre-tax results. For
investors holding these funds in taxable accounts, the active management of SEI’s funds very likely
would have produced more adverse tax consequences than the passively managed alternatives of
either DFA or Vanguard. If we eliminate SEI’s one index fund (TRQIX), the average turnover of the SEI
funds was 64%. The average turnover of the DFA funds (eliminating DFUSX) was just 8%, and the
average turnover for the Vanguard funds (eliminating VFINX) was 9%.
Second, Morningstar data unfortunately contains survivorship bias, which may or may not exist in SEI’s
case. It’s possible that some SEI’s funds were closed, or merged into other funds, during this time
period because of poor performance. I have no way of knowing.
Given SEI’s role as a consultant, another conclusion we can draw is that the evidence presented here
supports the concept that, while it’s possible to identify the fund managers who have outperformed in
the past, it’s much harder to do so ex-ante. That is, of course, why the SEC requires the warning about
relying on past performance.
Reviewing results
This is the 11th article in my series that reviews the performance of some of the leading mutual fund
families. The table below shows the relative performance of the portfolios from each of the fund
families I’ve examined relative to the performance of comparable portfolios from Vanguard and DFA,
as well as the results of the factor analyses.
Note that with TIAA-CREF, I did not originally perform the factor analysis. Thus, the data wasn’t in the
original article. However, I’ve now added that data so we have the same analysis for all 11 fund
families.
Page 7, ©2017 Advisor Perspectives, Inc. All rights reserved.
Portfolio Return
Versus Vanguard
Portfolio Return Three-Factor
Four-Factor
Six-Factor
Versus DFA
Average Alpha Average Alpha Average Alpha
(%)
(%)
(%)
(%)
(%)
-0.4
-0.4
0.2
0.2
-0.1
Goldman
-0.5
Sachs
-2.0
0.4
0.3
-1.4
JPMorgan
-0.1
Chase
-0.9
0.5
0.2
-0.8
American
+1.3
Funds
+0.1
0.6
0.7
0.8
Gabelli
Funds
+0.1
-0.2
0.5
0.6
-0.4
Waddell &
-0.1
Reed
-0.6
0.6
0.4
0.8
John
-0.2
Hancock
-0.4
0.0
0.0
-1.3
Morgan
Stanley
-1.2
-0.9
0.1
-0.4
-0.4
Wells
Fargo
+0.4
-0.3
0.6
0.2
-0.4
Russell
-1.1
-1.4
-2.2
-2.4
-3.6
SEI
-1.8
-2.0
-0.9
-1.0
-1.8
Average -0.3
-0.8
0.0
-0.3
-0.8
Fund
Family
TIAACREF
The following are some highlights from the table:
Of the 11 actively managed fund family portfolios, just three outperformed their comparable
Vanguard portfolios, and in one case the outperformance was just 0.1%. The average for all 11
was an underperformance of 0.3%.
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Compared to the DFA portfolios, just one actively managed fund family managed to outperform,
and that was by the slimmest of margins, just 0.1%. The average underperformance for all 11
was 0.8%.
The three-factor regressions produced an average alpha for the 11 active fund families of 0.0%.
The four-factor regressions produced an alpha of -0.3%. And the six-factor regressions produced
an alpha of -0.8%.
The only actively managed fund family in the group that added value when compared to both
Vanguard and DFA (though in this case by only the smallest of margins) was American Funds.
American also showed positive alphas relative to each of the factor regressions. While the
Waddell & Reed funds also showed positive alphas relative to each of the factor regressions,
their funds underperformed comparable portfolios from both Vanguard (by a small amount) and
DFA.
Larry Swedroe is director of research for the BAM Alliance, a community of more than 150
independent registered investment advisors throughout the country.
Disclosure: The included data and analysis is a summary of 10 other pieces related to an ongoing
series evaluating actively managed mutual fund families. For a complete list of those pieces, click
search Larry Swedroe at http://www.advisorperspectives.com. The corresponding portfolios are
provided for informational purposes only, were constructed specifically for this review and are not
portfolios that Buckingham recommends. The returns data included is from Morningstar, and Portfolio
Visualizer (https://www.portfoliovisualizer.com/factor-analysis) provided the tool for the factor
analysis. Performance is historical and does not guarantee future results. Information from sources
deemed reliable but its accuracy cannot be guaranteed. It should not be assumed that any of the
securities listed were or will prove to be profitable.
Page 9, ©2017 Advisor Perspectives, Inc. All rights reserved.