Global risk assets posted losses for September virtually across the board. Progress in the global economic recovery has been mixed. The Eurozone continues to face near zero growth and worsening disinflation. The United States on the other hand has been showing signs of improving economic conditions, particularly in the labour market. Emerging market assets have been weak as markets have begun to re-adjust downwards their expectations of economic growth.

South African Reserve Bank Governor Gill Marcus announced the end of her tenure at the September MPC press conference. She left rates unchanged at that meeting, passing the baton to her successor to normalise rates upwards. Subsequent to month-end President Zuma announced the appointment of Lesetja Kganyago as the new governor. He previously fulfilled the role of Deputy Governor of the Reserve Bank and we believe he has sufficient experience and credibility to provide confidence to the market. His rhetoric has been slightly more hawkish as compared to Governor Marcus and we believe he will step in to defend the rand through prudent monetary policy.

Local listed property returned 1.9% for the month, the only positive performing domestic risk asset class. Local Preference Shares (-1.9%), Equities (All Share Index: -2.0%) and Bonds (-1.5%) all posted steep declines. Money Market (+0.5%) was the second best performing asset class followed by Cash (+0.5%) and Inflation Linked Bonds (-0.1%).

US stocks ended weaker as the S&P500 returned -1.2% despite hitting an all-time high during the month. The MSCI World Index fell -2.1% while the MSCI Emerging Market Index posted steep losses down -5.7%.

The Nedgroup Investments Flexible Income Fund outperformed money market for the month of September with the offshore allocation to bonds and money market instruments aiding performance as the currency weakened. Local preference shares were detractors for the month.

The fund duration was maintained at a low level as we continue to hedge our fixed rate exposure to minimise the potential impact of higher rates. We trimmed bonds and shifted towards money market instruments. Our exposure to inflation-linked bonds went to zero as our short-term assets matured. Preference shares are a key holding as yields in this asset class are very attractive on both a pre-tax and post-tax basis. Bank preference shares offer an after tax yield of around 6.7% which is attractive in the current environment. The property exposure remained largely unchanged at 2.4%.

Our currency exposure was reduced from 6.5% to 3.9% as we hedged some exposure as the rand weakened. The rand remains undervalued on a fundamental basis, but we will continue to maintain an offshore currency exposure until interest rate and economic fundamentals are more favourable. The currency exposure remains a key holding of the fund due to its return potential and diversification benefits, and we will continue to use it on a tactical basis as valuations fluctuate. We have added exposure to offshore money market and will wait for better value before buying offshore assets again.

The outlook for global rates remains uncertain due to the weak level of global growth. However, global bond yields remain close to record lows and the potential return from current levels is limited, while the potential downside is large. In SA we believe that further rate hikes are necessary to return real interest rates to positive levels, but the extent of the rate hiking cycle is dependent on US interest rates. We will focus on maximising yield, while looking for strategic allocations to the various income asset classes in order to generate additional performance. The weighted average yield of the Nedgroup Investments Flexible Income Fund is currently 6.7%.

The calm in global markets continued in June as the low volatility environment was supportive of asset prices. The European Central Bank has been promising further monetary policy easing and delivered it in June. The ECB cut the deposit rate to negative (-0.1%) for the first time in its history while the US Fed continued to adopt a dovish tone at its FOMC meeting even as it continued to scale back its quantitative easing program.

In South Africa, Property (+3.4%) and Equities (+2.8%) were the best performing asset classes. Bonds performed well (+0.95%) as yields ticked down at the long end of the curve. Inflation-Linked Bonds performed well due (+1.4%) to the higher inflation environment. Preference Shares lagged this month with a return of 0.19%, below the Cash return of 0.44%.

The rand was slightly weaker for the month, falling 0.6% against US dollar and 1% against the Euro. The pound rose to a new 5-year high against the USD during June as the British economy continues to recover. US Stocks continued their upward move as the S&P500 rose 2% to new all times highs. The MSCI World Index Delivered a return of 1.8% while the MSCI Emerging Market Index returned 2.7% on the back of a 5.4% rise in the Indian Stock Market.

The Nedgroup Investments Flexible Income Fund outperformed money market for the month of June as the domestic allocations to floating and inflation linked assets performed well. The offshore allocation also added value due to the strong performance of our bond holdings and the mild rand weakness.

The overall Fund duration was reduced from 0.25 to 0.17 during June as we continue to hedge our fixed rate exposure to minimise the potential impact from higher rates. The short term Inflation-Linked Bond exposure fell due to asset maturities. Real yields along the ILB curve are well below fair value levels and we are likely to run the Fund with a reduced ILB exposure going forward. We have maintained the Preference Share exposure as yields in this asset class are very attractive on both a pre-tax and post-tax basis. Bank Preference Shares offer an effective credit spread of around 3.7% at current levels. The property exposure was increased slightly to 2.8% and we will continue to add exposure to high quality stocks as we see value.

Our currency exposure was increased from 5.4% to 6.1% as the rand recovered early in the month. The rand remains undervalued on a Fundamental basis, but we will continue to maintain an offshore currency exposure until interest rate Fundamentals are more favourable. The currency exposure remains a key holding of the Fund due to its return potential and diversification benefits, and we will continue to use it on a tactical basis as valuations fluctuate. Our offshore bond exposure was trimmed from 10.1% to 9.3% as we took profit on bonds where credit spreads have narrowed. We have added exposure to offshore money market and will wait for better value before buying offshore assets again.

The SARB increased the Repo rate from 5% to 5.5% in January but then held back from further hikes at the subsequent two meetings. We believe that further rate hikes are necessary to return real interest rates to positive levels. We remain cautious due to the fact that SA and global rates remain at unsustainably low levels, and the outlook for inflation is poor given the extent to which the rand has depreciated. We will focus on maximising yield, while looking for strategic allocations to the various income asset classes in order to generate additional performance.

Global markets enjoyed strong risk appetite during March with both equity and fixed income assets delivering good returns. Emerging markets rallied hard as the month drew to a close. Global investors shrugged off escalating tensions in Ukraine, and negligible contagion effects were registered - despite the Crimean referendum's legality being disputed by several world powers. Listed Property was the best performing asset class returning 4.6%. Preference Shares, the second best performing asset class in March returned 3.0%, reversing the prior month's decline. Inflation Linked Bonds enjoyed continued strength returning 2.6% for the month. Nominal Bonds returned 1.8% with yields ticking down between 7 and 23 basis points across the curve. The short end of the yield curve was particularly strong. Both bonds and ILBs outperformed the money market return of 0.46%.

The rand gained 2.1% against the dollar and 1.2% on a trade weighted basis. Emerging Market Equities gained (+3.7%), outpacing Developed Market Equities (+0.8%). Global Bond yields were stable over the month which aided the recovery in EM Currencies and Bonds.

The Nedgroup Investments Flexible Income Fund outperformed money market for the month of March as yields declined and local fixed income assets outperformed. Our property and preference share exposure both delivered strong performance. The Domestic Fixed Income allocation also delivered, while our offshore allocation was a small detractor.

The overall Fund duration was reduced from 0.5 to 0.4 during March, with local assets accounting for 0.3 years of duration. There is some value in locking in rates along the curve, but we remain cautious due to our expectation of further interest-rate hikes. The short term Inflation Linked Bond exposure was maintained as the return profile looks very attractive in the context of substantial upside inflation risks owing to the weak rand and foreign trade imbalances. Real yields along the ILB curve continued to move down over the month. However, we still do not see good value in long term ILBs at this level. We have maintained the Preference Share exposure as yields in this asset class are very attractive on both a pre-tax and post-tax basis. Bank preference shares offer an effective credit spread of around 4% at current levels. The property exposure was increased slightly and we will continue to add exposure to high quality stocks as we see value.
The rand remains undervalued on a fundamental basis, but we will continue to maintain an offshore currency exposure until interest rate fundamentals are more favourable. The currency exposure remains a key holding of the Fund due to its return potential and diversification benefits, and we will continue to use it on a tactical basis as valuations fluctuate.

With the SARB starting the process of normalising interest rates, we believe that further rate hikes are necessary to return real interest rates to positive levels. We remain cautious due to the fact that both South African and global rates remain at unsustainably low levels, and the outlook for inflation is poor given the extent to which the rand has depreciated. Alternative income and hybrid assets such as preference shares and convertible bonds offer attractive returns. We will focus on maximising yield, while looking for strategic allocations to the various income asset classes in order to generate additional performance.

Global markets were once again dominated by the US Federal Reserve action. Following December's FOMC meeting, Fed Chairman Ben Bernanke announced the much anticipated reduction in Quantitative Easing Asset Purchases starting in January. The announcement came earlier than most market participants were expecting and resulted in a continued up-tick in global bond yields.

In SA, owing to both domestic and global factors, the rand continued to depreciate markedly against the dollar (-3,4% for the month). Fear of rand inflation pass-through has caused the market to price in interest rate hikes as early as Q1 2014. Despite downgrades in SA economic growth expectations, Gill Marcus stated in the most recent Monetary Policy Committee announcement that there is now no room for further monetary easing.

In local markets, preference shares were once again the best performing sector returning 5.1% for the month. The All Share Index rebounded strongly, returning 3.0% in December. Bonds were resilient, returning 1.1% for the month despite a broad up-tick in global bond yields (US 10 Year Treasury yield +28bp). Inflation linked bonds returned 1.1%. Listed property returned 1.0% offsetting prior losses and cash returned 0.5%.

The Nedgroup Investments Flexible Income Fund outperformed money market for the month of December, driven by the strong performance of offshore bonds and preference shares. The Fund continues to be positioned conservatively from an interest rate perspective.

The Fund duration was broadly unchanged at 0,54 years as bond yields ticked down 3bp. The inflation linked bond exposure remained at 8.6%. The return profile for short term inflation linked bonds (ILBs) continues to look attractive, but we remain out of medium to longer dated ILB's as the real yields are too low. The preference share exposure is 11% as yields in this asset class are very attractive on both a pre-tax and post-tax basis. Bank preference shares offer post tax yields close to 6.0% at current levels. The property exposure remains low at 1.8% as the sector is expensive relative to bonds. We remain cautious due to the downside risks of a weak economy and upward pressure on interest rates potentially impacting the property sector.

During the month our currency exposure was increased to 7.2% from 6.6%. The rand remains undervalued, but we will continue to maintain an offshore currency exposure until interest rate fundamentals are more favourable. The currency exposure remains a key holding of the Fund due to its return potential and diversification benefits, and we will continue to use it on a tactical basis as valuations fluctuate.

We remain cautious due to the fact that both SA and global rates remain at unsustainably low levels and we would look to minimise our interest rate risk at this point in the cycle. There is currently value in alternative income and hybrid assets such as preference shares and convertibles. Bonds are now tentatively starting to show value as a result of a prolonged global sell-off. We will focus on maximising yield, while looking for strategic allocations to the various income asset classes in order to generate additional performance.

The key event in September was the surprise announcement that the US Federal Reserve would delay its wind down of Quantitative Easing, which lead to an increased appetite for risky assets. In contrast, the South African Reserve Bank has now started to shift its policy stance, preparing the market for a potential rate hike on the horizon. US bond yields pushed lower by 17 basis points, almost completely offsetting the previous month's sell off. Local bond yields moved in concert with the US, strengthening 62 basis points.

South African nominal bonds and inflation linked bonds returned 3.9% and 2.8% respectively. The property sector rebounded with the SAPY Property Index climbing 6.7% on the back of falling bond yields. The local equity market performed well with a return of 5.1% driven by the FINI15 Index which delivered 6.5%. Preference shares were flat for the month. Global equities rebounded, with the MSCI World Index and MSCI Emerging Market Index delivering 5.0% and 6.5% respectively. The rand enjoyed a modest reprieve from its weakening trend, appreciating 2.5% against the USD on the back of broad dollar weakness and 0.6% on a trade weighted basis.

The Nedgroup Investments Flexible Income Fund outperformed money market for the month. The Fund's outperformance was driven by its modest exposure to fixed rate assets as yields fell and allocation to yield enhanced money market assets. The Fund continues to be positioned conservatively from an interest rate perspective. The offshore allocation added pleasing performance despite a somewhat stronger rand. Against the backdrop of a difficult fixed income environment since May the Fund has managed to preserve capital.

In terms of Fund positioning, duration was reduced from 0.64 to 0.44 during the month as we sought to lock in returns from the rally in bond yields. We have currently locked in around 10% of the Fund in the 2-3 year area of the yield curve through a combination of swaps and bonds. We intend to maintain a relatively low duration unless rates move up sharply. With inflation moving up markedly in September, the 12% allocation to inflation linked bonds is set to deliver very attractive yields going forward. The preference share exposure is 9.5% as yields in this asset class are very attractive on both a pre-tax and post-tax basis. The property sector offers value despite the rebound off the lows and we will look to opportunistically increase our allocation.

We are however aware of the downside risks of a weak economy and upward pressure on interest rates potentially impacting the property sector.

During the month our currency exposure was maintained at 5.2%. The rand remains undervalued, but we will continue to maintain an offshore currency exposure until growth and interest rate fundamentals are more favourable. The currency exposure remains a key holding of the Fund due to its return potential and diversification benefits, and we will continue to use it on a tactical basis as valuations fluctuate.

While we do see modest value in the yield curve, we remain cautious due to the fact that both SA and global rates remain at unsustainably low levels. We do not want to take on too much interest rate risk at this point in the cycle. There is currently value in alternative income and hybrid assets such as preference shares and convertible bonds. We will focus on maximising yield, while looking for strategic allocations to the various income asset classes in order to generate additional performance.