Market Volatility Toolkit KMA

Navigating through Market Turbulence• Recent market volatility has left some investors feeling uneasy about their portfolios • S&P 500 declined 10% from October 9th to November 26 • S&P

Staying the Course through Market Volatility

March 2008

Navigating through Market Turbulence

• Recent market volatility has left some investors feeling uneasy

about their portfolios

• S&P 500 declined 10% from October 9th to November 26

• S&P 500 rebounded in December, ending the year at 3.5%

• And the rollercoaster ride continues…

• Through the first three weeks of January 2008, the S&P has declined 9.7%

As we come to terms with recent volatility, it is important

to revisit some basic principles about the stock market

US Equity Markets - A Wild and Bumpy Ride…

Feb 27 th – US stocks plunged,

erasing all of 2007 gains after

sell-off in China spreads and sparked

the biggest rout in four years

Aug 28 th – Financial shares drive the S&P 500 down 2.4% as

487 of its members fell March 13 th – Mortgage Bankers Association reports that delinquencies for

sub-prime reached 13.33% in Q4, highest since Q203

Nov 1 st – US Financials fall 4.6%, the most since September 2002

Aug 9 th – All

10 industry groups in the S&P 500 dropped more than 2%

Apr 16 th – S&P 500 surged to its highest in more than six years

2007 S&P 500 Roller Coaster Ride

Putting Recent Volatility in Perspective

– S&P appreciated roughly 3.5%

– Total return basis nearly 5.5%

(includes dividend reinvestment)

– S&P down roughly 9.75%

– Total return basis 9.67%

(includes dividend reinvestment)

Short-term Market Swings are the Norm, Not a Signal that the Sky Is Falling

Be Wary of Market Hysteria and Chicken Little!

• “This is not a prediction, it is a certainty - there will be serious disruption in the world’s

financial services industry It’s going to be ugly”

-The Sunday Times, London

- As we know, Y2k came and went smoothly

• “Capitalism will come to an end in the United States around the year 2000”

• “Stock markets will start crashing by the end of 1997”

- Dr Ravi Batra, Prof of Economics, The Great Depression of 1990

- S&P 500 proceeded to return in excess of 20% for the years

1997, 1998 and 1999

It is important to evaluate financial news with a trusted Advisor

Pundits and Media Contribute to the Hysteria…

Jan 12 th - “The biggest concern that investors have is not that a recession is likely

but that growth might be too strong”

Jan 24 th - “After this sluggish start to the year, we should have a pretty good stock

market as we go through 2007”

Feb 20 th - “While the mortgage market for borrowers with poor credit is behaving

in a ‘very problematic way’, the issue is unlikely to spread to the rest of the bank

industry….most of the problem loans are outside the banking system”

Mar 13 th - “People are panicking…Everyone is concerned about credit and that access to capital will be severely restricted If that happens,

nothing gets done.”

Mar 20 th - “It supports many peoples’ soft-landing scenarios, where

housing doesn’t get that bad.”

Aug 9 th - “The overnight rate banks charge each other in dollars jumped

to the highest in six years.”

Aug 28 th - “The Conference Board reported today consumer confidence fell the most since 2005, while the S&P/CS Schiller said home values had the steepest tumble in at least five years in June.”

Source: Bloomberg

Nov 1 st - “There is more downside in financials We just don’t know what the ultimate impact

is going to be for all the sub-prime difficulties.”

Dec 10 th - “Negative news from the banking industry are not that shocking anymore

Now the question is what would the right timing for buying bank shares.”

The Stock Market Can Be a Roller-Coaster Ride:

Be Careful When You Get Off!

“recessionary” concerns:

• Investor panic that the economy would collapse

• Dow drops by 416 points on February 27

• Biggest one-day fall since the 9/11 attacks

• Dow then reaches a record high of 13,633 on May 30

• Breaks record 4 more times, reaching 14,164 on October 9

• 4th Quarter pullback stretches into 2008

• Dow closes at 12,099 on January 18 (down 8.8% in 2008)

• Dow opens 400 points down at the opening bell on January 22

• Federal funds rate cut by three quarters of a percentage point

If a Recession is Underway, It Would Keep the Market

in Retreat But It Could Also Lead to an Investment Opportunity

Source: Ned Davis Research; S& P 500 Index returns based 10 post-war recessions, “Recession Could Lead to Table Pounding Buy”, January 14, 2008

Average Performance Before, During & After recession Average & Median Performance from

S&P500 Low During Recession (i.e Rebound)

Based on the 10 post-war recessions, we see that the markets could recover relatively quickly and investors could miss the rebound with market timing The 10 post-war recessions have lasted a median of 10 months

Source: Ibbotson Associates, SEI

S&P 500 Annual Returns (1968-2007)

The indices illustrated herein are unmanaged indices You cannot invest directly in an index Index returns do not reflect the impact of any management

0

Below -20% -20% to -10% -10% to 0 0 to +10% +10% to +20% Over +20%

1974

2003

1985 1999

1983 1998

1982 1997

1980 1996

1975 1995

1967 1991 1989

2006 2004 1988 1986 1979 1976 1972 1971 1968

2007 2005 1994 1993 1992 1987 1984 1978 1970

2000 1990 1981 1977 1969

2001 1973 1966

The Stock Market Delivers Over the Long-term

• From 1966 through 2005, the S&P 500 has returned an average of 10.53%

2002

Investment Period Average Annual Total Return

Fully Invested (2,519 days) 5.89%

Minus 30 Best Days -3.23%

Source: S & P 500 Index: 01/01/98 to12/31/07

* Lehman US Short Treasury Bills

Market Timing:

Moving In and Out of Cash During Volatile Times Can Be Costly

Asset Class Returns Vary Throughout Time

Managing Volatility through Diversification

A broad set of asset classes helps to smooth out volatility and

some asset classes had positive returns:

Stocks - as measured by the S & P 500 - 3.3%

Bonds - Lehman US Aggregate + 3.0%

Treasuries - Lehman 1-3 Gov’t Bond + 2.3%

This trend continued during the first three weeks of 2008:

Stocks - as measured by the S & P 500 - 9.7%

Bonds - Lehman US Aggregate + 1.7%

Treasuries - Lehman 1-3 Gov’t Bond + 1.3%

Investors Should Benefit from a Long Term and Diversified

Exposure to the Broad Markets

• Natural oscillation between fear and greed may lead to sub-optimal portfolio decisions

• The credit market has suffered regardless of fundamentals; many managers see a lot of under-valued credits; while still in full swing, the credit crisis is showing signs of mending

• Fears of a slowdown in global growth may be exaggerated

– Overall global growth remains as strong as it has been in the last 25 years

Emerging market economies now make up 50% of the world’s GDP and about 75% of the world’s recent growth Emerging markets could continue to grow since they are still

in the middle of a productivity revolution i.e investing in their own infrastructure and

running significant current account surpluses

• We live in a world of cycles (economic, market and investors sentiment) that should lead

to viable investment opportunities

• A well diversified asset allocation can weather turbulent times

• Experienced managers understand that we live in a world of cycles; they don’t panic and maintain their discipline; they look for opportunities where others see uncertainty and

fear; they’re humble; they re-assess their positioning as new data becomes available

• Investors should focus on their long term goals and try not to give into the natural

inclination toward greed and fear

The Disciplined Investment Approach

A Simple Six-Step Process

1 Asset Allocation: Design a customized portfolio based on your personal

objectives, time horizon and risk tolerance

2 Portfolio Structure: Diversify across asset classes and market sectors

to maximize returns and moderate risk

3 Tax Management: Increase your investment returns by reducing taxes.

4 Specialist Managers: Take advantage of the expertise provided by money

managers who specialize in specific areas of the market

5 Portfolio Management: Monitor your portfolio on a regular basis

to evaluate manager performance and rebalance as necessary

6 Consult with Me: Review your progress and discuss any changes in your

objectives, time horizon or risk tolerance to maintain your strategic positioning

Asset Allocation is the Primary Determinant

of Total Portfolio Return

Source: Brinson, Singer, and Beebower (1991)

Security Selection 4.6% Market Timing 1.8%

Other 2.1%

Asset Allocation

91.5%

The Benefits of a Systematic Investment Approach

Identify Client Objectives

Identify Relevant Risks

Identify Appropriate Portfolios

Structured

Asset

Efficient Portfolio

Manager Selection

Continuous Portfolio

Tax Management

Staying the Course: What You Can Expect from Me

As your advisor, it is my responsibility to:

• Help you assess and re-assess your risk tolerance throughout time

• Guide you in making decisions to meet your individual goals

• Design the optimal portfolio structure based on your objectives,

time frames and risk tolerance

• Continuously monitor your portfolio performance

• Provide you with regular reporting statements

• Keep you abreast of any additional opportunities to improve

your chances of achieving financial success

Where Do We Go from Here?

• Nobody has a crystal ball and we can’t predict the market

• We can ensure that we are implementing the best possible strategy

• Recent events remind us of the need to re-assess you risk tolerance as well as review and rebalance your portfolio structure to maintain your strategic

positioning

• Decisions and alternatives also need to be weighed within

the context of the broader economic landscape

Disclosure Information

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 This information should not be relied upon by the reader as

research or investment advice This information is for educational purposes only Index returns are for illustrative purposes only and do not represent actual fund performance Index performance returns do not reflect any management fees,

transaction costs or expenses Indexes are unmanaged and one cannot invest directly in an index Past performance does not guarantee future results.

To determine if the fund(s) are an appropriate investment for you, carefully

consider the fund’s investment objectives, risk factors and charges and expenses before investing This and other information can be found in the Fund’s prospectus, which may be obtained by calling 1-800-DIAL-SEI Please read it carefully before investing.

There are risks involved with investing, including loss of principal.

SEI Investments Management Corporation is the adviser to the SEI funds, which are distributed by SEI Investments Distribution Co (SIDCO) SIMC and SIDCO are wholly owned subsidiaries of SEI Investments Company.