The financial crisis worsened in the third quarter and in the process dragged all global markets into negative territory. World markets were down 15.7% in the third quarter, bringing the year-to-date fall to 24.3%. This has prompted governments to intervene in America and Europe with proposed bail-out packages for their banking sectors.

The Fund benefited from a lower equity exposure, a higher exposure to selected Japanese companies and the overweight yen position. The Fund remains conservatively positioned with a below benchmark equity exposure and an overweight position in selected Japanese companies. The primary exposure to Financials is to Japanese banks. These banks are in the envious position of having sufficient (and even excess) capital at their disposal. Orbis still sees opportunity for these banks to grow their earnings.

The portfolio remains overweight the yen and underweight the US dollar, pound and euro. The yen position has contributed positively for the year to date. Following the crises in world markets, investors have moved away from risky assets into perceived safety. This has resulted in a strengthening of the yen versus especially the euro, effectively a reverse of the carry trade which has been such a characteristic of the risk-seeking behaviour of the recent past.

Orbis's relative performance suffered in the second quarter of 2008 due to its underweight position in the Oil & Energy sector, and due to the weakening of the yen versus the US$ and the Euro. Although Orbis has correctly avoided many of the US Financial stocks, the Japanese banks held in the Global Equity Fund have also declined with other global Financials. These banks now trade at significant discounts to Orbis' estimate of their fair value. Orbis believes these companies' earnings are below normal and sees many possible catalysts for earnings growth.

The Fund remains conservatively positioned with approximately 47% exposure to equities. The Orbis Optimal SA Funds have underperformed their cash benchmarks for the year-to-date. This underperformance is disappointing given the fact that the Optimal SA Funds are hedged against world stockmarkets. It is mainly due to Orbis' negative equity alpha that the Optimal SA Funds have underperformed and while this short-term underperformance is very disappointing, Orbis believes the underlying equities are well positioned for long-term outperformance.

World markets were down 8.8% in US dollar terms for the first quarter of 2008. The Fund had an equity exposure of approximately 50% during the quarter with the balance invested in the Orbis Optimal SA absolute return funds. This helped performance relative to the benchmark which has 60% exposure to world equity markets.

The portfolio remains overweight in Japanese listed shares. Although Japanese shares in general have declined along with world markets, Orbis' specific selection of Japanese shares have outperformed relative to the TOPIX index of Japanese companies. This is in part due to Orbis not owning the export oriented companies which have underperformed in the face of an appreciating yen. Orbis continues to find very attractive opportunities in selected domestic focused Japanese companies that are trading on undemanding valuations, with prospects to grow their profits.

The portfolio remains very overweight the yen at the expense of the US dollar, pound and euro. Up until recently this position has cost the portfolio, due to the yen weakening against the other major currencies, and due to the cost of carry of owning a very low-yielding currency like the yen at the expense of higher yielding currencies like the pound and euro. During the quarter the yen appreciated by 11.2% against the US dollar, contributing significantly to the outperformance of the portfolio versus its benchmark. Despite this recent yen strength Orbis believes the yen is still a more attractive store of value than the major western currencies.

Over the last year the Fund has returned 12.1% in dollars versus its benchmark of 11.3%. The Global Fund of Funds invests in a balanced portfolio of Orbis equity and absolute return funds. The Fund remains overweight Asian and Japanese equities. The Fund's overweight exposure to Japan and the Yen, which had contributed to short-term underperformance of its benchmark earlier in the year were a positive contributor to relative performance in recent months. We continue to believe that these holdings provide attractive investment opportunities. Given our cautious outlook on global equities the Fund now has a conservative 48% in equities with the balance in absolute return funds.