This month, BFI interviews Sean Simko, managing director and head of Global Fixed Income Management at SEI Investments. His responsibilities include "oversight of the fixed-income investment process, strategy and management of daily trading" and he "leads a team of investment professionals responsible for research, analysis, implementation, and ongoing portfolio management of over $7 billion of fixed-income strategies." Simko discusses SEI's separately-managed account options and forecasts that the Fed will likely not make any further upward moves in short-term interest rates this year. (He is also scheduled to speak at our Bond Fund Symposium, March 25-26, in Philadelphia. We'd like to remind those attending to register soon!) Note: This profile is reprinted from the February issue of our Bond Fund Intelligence publication. Contact us if you'd like to see the full issue, or if you'd like to see our BFI XLS performance spreadsheet, our BFI Indexes and averages, or our most recent Bond Fund Portfolio Holdings data set, which was published Tuesday.
BFI: How long has SEI been involved in running bond funds? Simko: SEI has been offering short-term bond funds since the launch of the SDIT Short-Duration Government Fund [with portfolio assets of $688 million as of Dec. 31, 2018] in February of 1987.
BFI: Tell us about your role at SEI. Simko: I have been in my role as Managing Director, Head of Fixed Income Portfolio Management, since 2005. I have the responsibilities and oversight of the department's overall investment process and management of daily trading of approximately $9 billion. I lead a team of investment professionals dedicated to the research, development, implementation and day-to-day management of a broad suite of fixed-income strategies in both U.S.-dollar and non-dollar markets. Prior to SEI, I was a portfolio manager at Weiss Peck & Greer on the Fixed Income Team.
BFI: Tell us about the Real Return Bond Fund, and SEI's other bond fund offerings. Simko: Tim Sauermelch, CFA, and I have co-managed the Real Return Bond Fund since 2013. The fund strives to protect investors' purchasing power against inflation. The strategy is implemented primarily through the use of Treasury Inflation-Protected Securities. This fund could be viewed as a staple in an investment portfolio that is looking to receive inflation protection.
BFI: Talk about the challenges with rates, supply, and 'hot money.' Simko: The lack of heightened inflationary pressure is a notable challenge in the real-rates market. This is not a new phenomenon, as inflation has been well contained for years. Despite this, inflation has the ability to quickly materialize, usually when it is not expected. Investors that seek to protect their purchasing power from inflation need to hold firm with their asset allocation models even when inflation appears to be well contained. If inflation protection is part of their model, it should be looked at as an insurance policy; a hedge against the threat of inflation. It is always cheaper to purchase insurance when you don't need it.
BFI: What is special about the Real Return Fund? Simko: While we have the ability to use a wide range of investment-grade fixed-income securities, the Real Return Fund is a purest in terms of attempting to capture inflation protection through Treasury Inflation-Protected Securities (no derivatives). The Real Return Fund aims to produce a total return that exceeds the rate of inflation in the United States. We invest in Treasury Inflation-Protected Securities with varying maturities.
BFI: Is SEI looking at launching other new products in this space? Simko: Although not a new addition to SEI's lineup, the Multi-Asset Real Return Fund seeks to generate "real return" by selecting investments from among a broad range of asset classes, including fixed-income securities, equity securities and commodity-linked instruments.
BFI: Talk about the company's separately-managed account offerings. Simko: SEI offers many options within its separate-account platform. Solutions cover a broad spectrum, including low-turnover strategies, optimized strategies, factor-based and active mandates. In terms of my team, with the use of technology, we've found success in providing custom portfolios at lower minimums. This enables a wider audience to access the customization and transparency benefits of a custom fixed-income portfolio.
BFI: Who are your investors? Simko: Our funds appeal to a range of investors seeking exposure to fixed-income securities as part of their overall asset allocation. On the separate-account side, institutions, foundations, endowments and high-net-worth investors rely on us for cash management, liability matching and operating funds.
BFI: What is your outlook for the Fed? Simko: Financial conditions remain relatively easy. This gives the Fed some, but limited, capacity for further rate hikes if economic data warrants a move. Against this backdrop, we are in the camp that the FOMC is likely on hold for the remainder of the year. The committee will remain data dependent and, if needed, raise interest rates one more time. We feel that the prospect of additional tightening carries a low probability. A sidelined Fed will help hold 10-year rates in a tight range of 2.5% to 3%.
BFI: What do you think about the future of bond funds? Simko: At some point in their lives, nearly all investors will have a need for fixed-income investments. So, bond funds will always have a place among fixed-income offerings. In particular, active bond fund managers continue to deliver value, and separate accounts are available for investors that require greater transparency and control.
