What’s New With Investment Styles?

1. What’s New With Investment Styles?

2. Past Performance as a Determinant of Return Predictive Ability of Past Performance 505 44% 50% 56% 1990-1994 1995-1999 1990-1994 1995-1999 Source: Morningstar

3. The Importance of Asset Allocationin Explaining Total Portfolio Returns Contribution to Return Variation Security Selection 4.6% Market Timing 1.8% Other 2.1% Asset Allocation 91.5% Source: Brinson, Singer, and Beebower (1991)

4. The Importance of Investment Stylein Explaining Individual Manager Returns Contribution to Return Variation Active Management 10% Investment Style 90% Source: Sharpe (1992)

5. What is Investment Style? Large Capitalization Large Cap Value Large Cap Growth Value Growth Small Cap Value Small Cap Growth Small Capitalization

6. 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 Investment Style as a Determinant of Return Differences in Style Returns for U.S. Equities 20 15 Growth Outperforms Value Outperforms 10 5 0 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 20 Large Cap Outperforms Small Cap Outperforms 15 10 5 0 Source: SEI Investments Management Corporation

7. Style Distribution of Equity Manager Universe Large Cap Value Large Cap Growth Small Cap Value Small Cap Growth

8. Small Cap Large Cap Growth Growth Small Cap Value Performance Attribution UsingStyle Analysis Effective Mix Performance Attribution Stock Selection Style Allocation 8 4 Percent Allocation 0 Percent Return Large Cap Value -4 -8 Time Time

9. Investment Style as a Determinant of Return 14 12 10 8 6 4 2 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Deep Value Core Value

10. Manager Sub-Style DiversificationReduces Tracking Error Small Cap Growth Manager Tracking Error Mazama 13.9 Roberston Stephens 11.0 Wall Street Associates 9.5 Nicholas Applegate 7.8 Sawgrass 13.1 Combination 5.8 Average Small Cap Growth Fund 9.1

11. Style Volatility is Increasing Best Performing vs. Worst Performing U.S. Equity Style 35 30 25 20 Return Difference, Rolling 3 Month 15 10 5 0 1999 1995 1996 1997 1998

12. Sub-Style Volatility is Increasing 5 Year Tracking Error Range of Small Cap Growth Funds 30 25 20 15 10 5 0 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

13. Returns to Technology areDriving Style Volatility 1000 800 600 Cumulative Wealth Advantage vs S&P 500 400 200 0 0 1 2 3 4 5 6 7 -200 Years into Bull Market S&P Technology (1992-1999)

14. But We Have Been There Before 1000 800 600 Cumulative Wealth Advantage vs S&P 500 400 200 0 0 1 2 3 4 5 6 7 -200 Years into Bull Market S&P Technology (1992-1999) S&P Tobacco (1985-1992)

15. Investment Styles Go In and Out of Favor LCG Outperforms by 60% 30 LCG Outperforms by 48% LCV Outperforms by 55% 25 LCV Outperforms by 49% 20 15 10 5 0 1980 1985 1990 1995 1999 Large Cap Value Outperforms Large Cap Growth Outperforms Source: Russell

16. Wide Divergences Exist Between theLeast and Most Expensive Stocks in the Russell 1000 43 104.3 17.1 1.2 Price/Book Price/Earnings Cheapest Quartile Richest Quartile Source: Wilshire

17. Value Manager Drift in 1999 Technology Finance Price / Price / Weighting Weighting Earnings Book Top Quartile 18.4 17.3 30.4 6.9 Bottom Quartile 6.7 23.6 23.9 4.5 Russell 1000 Value Index 7.4 30.7 20.3 4.8 Source: Morningstar

18. Are These Value Stocks? Price/ Price/ Earnings Book MCI Worldcom 30.0 3.3 Motorola 45.7 6.6 Sprint 37.0 4.8 Micron Technology 64.8 6.1

19. Conclusions • Returns to technology are creating wide divergences in valuation and index returns • Sub-style variability is increasing, but can be managed with multiple manager portfolio construction • It is much harder to analyze sub-styles than it is to analyze styles