The portfolio is currently 90% invested in the Marathon Asset Management Global Equity Fund, with the balance in cash. The fund outperformed the benchmark MSCI return of 0.95%.

With the exception of the US market, a quick view of the charts shows nearly vertical upward momentum in almost all the stock markets around the world. Canada is back to the previous all-time high set in 2000. In the South Americas, countries such as Argentina, Brazil, Chile, Mexico, and Peru are blasting to levels unknown. Australia, South Africa and South Korea are moving to uncharted territory virtually every day, while Malaysia, Hong Kong, Japan Singapore and Thailand, have all experienced a turn in trend direction and are moving upwards. A similar picture emerges from the Eastern European nations, Russian and Middle Eastern stock markets.

Why should this be? Does one attribute this optimism to: the fact that global leading indicators appear to have turned a corner and are showing signs of resurgence; or the apparently unstoppable uptrend in commodity prices, signifying buoyant demand; or the still-low level of real interest rates around the world; or the perception that equity risk aversion has little relevance in portfolio construction; or that ratings multiples, which indicate that equity markets are no worse than fairly valued - is no disincentive at all; or might it be the current phase of corporate capital restructuring that is typified by buy -backs and special dividend payments is set to continue; or could the huge amount of liquidity, which has led to bond markets becoming overvalued, have now found a new outlet in the form of shares? The answer probably lies in some, if not all, of these.

How long can it last? This is the most difficult to answer with any accuracy. Fund managers need to search for clues. The first lies in the almost insular performance of the US equity market. The S&P500 index has underperformed the world averages and even those of the UK, which has been spectacularly weak.

The second clue lies in the dislocation of what was previously an inverse correlation between the US$ and certain other variables. Amongst these is the $-gold price. Until about May of this year, that relationship was inverse. Since then the relationship has become positive. A similar dislocation exists between the greenback and base metal prices.

The portfolio is currently 96% invested in the Marathon Asset Management Global Equity Fund, with the balance in cash. The fund underperformed the benchmark MSCI return of 0.56% in August.
Just when you thought that you were getting it right, some other unforecastable event pops out of the woodwork and humbles you. It was our view, and that of other investors, that bonds as an asset class (similar to residential properties!) has been overvalued for some time now. The turn in bond prices in June and July was therefore to be welcomed. We assumed that these were the first small steps to further derating. August however, proved to be a strong month once again for bonds - driven by concerns that the inexorable rise in oil prices would slow consumer demand, and the negative impact on GDP of the events in the southern states of the USA. Viewed from a slightly different perspective, however, lower bond rates are supportive of the equity market.

The Nedbank Global Equity Feeder Fund invests into a single portfolio, the Marathon Global Equity portfolio, managed by Marathon Asset Management. Marathon is an owner-managed global equity investment firm based in London. Their investment philosophy and process is long-term and contrarian, with a focus on industry capital cycle analysis and in-depth management assessment.
Marathon has an enviable long-term track record. In 2004, they were recognised by Global Investor Magazine as the world's best global equity and European equity managers. Their success has resulted in Marathon closing to new business. As a result, we have also had to close the Nedbank Global Equity Feeder Fund to new business, as this will ensure that we do not dilute the exposure that our existing investors have to these exceptional money managers.

The Nedbank Global Equity Feeder Fund Class B currently charges an annual management fee of 0.86% (including VAT). With effect from 1 Dec 2005, this fee will be increased to 1.14% (including VAT), to align it with the fee charged on the Nedbank Global Equity Feeder Fund Class A. By way of comparison, the annual management fees of similarly mandated global equity feeder funds and fund of funds range, on average, between 1.14 and 1.71% (including VAT).

The portfolio is currently 95% invested in the Marathon Global Equity Fund, with the balance in cash. The relative performance of the Marathon fund (US dollar-terms) is: Marathon One year 14.36% (MSCI World 10.59%); Marathon three years (ann.) 15.23% (MSCI World 10.56%) Marathon since inception 11.03% (MSCI World 6.31%).
Mr Greenspan refers to it as a conundrum, which one dictionary defines as: a paradoxical, insoluble, or difficult problem. The "it" that confuses him is the bond market performance and more specifically, the long-end. Bond rates and the resultant yield curve are broadly reflective of the current and prospective state of a nation's economy. US long bond rates are attempting to broach new lows almost on a daily basis. To the extent that it is long rates that determine the prices at which housing loans are undertaken, the lower these rates are, the more attractive it is to take out mortgage finance - something that the Fed is desirous of quashing.
The current level of rates would imply, amongst others, that the US bond market anticipates its economy to slow substantially in the coming months. This is where the conundrum arises for Mr Greenspan: he believes that the bond market is wrong and thinks that the economy is far more buoyant than the bond market gives credit for. The Fed chairman is drawing on the statistics that show the US consumer to be too resilient, as evidenced by the large and growing trade deficit, burgeoning house prices as well as his fear of sticky oil prices. As a consequence, he is committed to raising rates until something gives.
The currency markets seem to buy into Mr Greenspan's view. The US dollar has appreciated by some 9% since the beginning of the year. Is this not counter-productive, since a stronger dollar cheapens the cost of imports and could worsen an already improbably high trade deficit? The answer is yes, it could do so in the short term. One must remember that the Fed is not targeting the trade deficit (the symptom) directly, but rather the consumer (the cause). By making the cost of money dearer, the Fed hopes to slow demand and thereby tackle the property bubble and trade deficit.
This brings us back full circle: is the bond market at odds with the Fed chairman? We believe not necessarily so. All that differs is the time horizon. The relevance of this for the equity market is that low bond rates are supportive of share prices. With earnings coming under pressure as the cycle slows, investors should become worried if this move is combined with rising long bond rates.

The portfolio is currently 97% invested in the Marathon Asset Management Global Equity Fund, with the balance in cash.
After two consecutive months of negative performance, it was probably scripted that international equity markets stage a rebound. Much of the bounce, however, can be laid at the door of a turn in the performance of the US dollar . Quite what prompted the reversal in the trend of the world's preeminent currency is not quite clear. Possibly the universally-held view that the US dollar is a structurally weak currency owing to the mountain of debt that supports the economy, had left the market wide open to an alternative positioning. Maybe the fact that interest rate differentials are narrowing in favour of the greenback, has finally attracted greater investment backing. Who knows? Has the dollar bottomed? Our guess is in the affirmative. It would require a bout of tightening by the other central banks to halt the upward move of the dollar, despite the underlying trade and other imbalances in the USA. This is unlikely as most of the remaining large economies are under the whip. So, the world now gives recognition to the attempt by the Fed to cool the consumer down in the old-fashioned way - by buying US dollars. This then raises the question; by how much more will rates rise?

The portfolio is currently 96% invested in the Marathon Asset Management Global Equity Fund, with the balance in cash. This fund underperformed the benchmark MSCI return of -1.9% by 0.9% in April.
The negative performance of world equity markets, that began at the beginning of March, gained more momentum in April. From the March peak, developed share markets are down some 6% in USdollar terms and developing markets have lost about 10% in equivalent currency. There is little doubt that risk appetite has taken a serious knock.
Market concerns have been primarily focused on the impact of the end of the reflationary cycle as the Fed in particular, applies the monetary brakes. It is therefore logical that most of the brunt in the weaker US market be borne by the likes of the Materials Index (off 7%), Consumer Discretionary (down 6%) and Energy (-5%). Conversely, the better performers were Health Care (up 3%) and Utilities (higher by 3%), as market players sought more defensive and high dividend yield counters. It is interesting that the recent change in view on size remained a feature, with the mid- and small-cap indices underperforming their larger counterparts by some 1% and 3% respectively in April. This is supportive of the view that a slow down in local growth will have a greater impact on the local players than on the geographically diversified multinationals. This turn has also been supported by a stronger US$/Euro currency.

The fund is currently 94% invested in the Marathon Asset Management Global Equity Fund, with the balance in cash.
The last couple of weeks of the quarter heralded a sea change in global equity markets. We previously commented on the scale of re-rating that had taken place in most share markets in 2004 and the significant amount of value erosion that had taken place as a consequence. Asset risk had been re-priced to its maximum extreme - especially in bond markets and in corporate and emerging market spreads. Something had to give, but no one could forecast what would precipitate lower prices, or when this would happen. Two old bogeymen upset the applecart - exchange rates and inflation. Interestingly, they came from two different sources.
During March, Chinese Premier, Wen Jiabao, announced: "We are working on a plan to reform the exchange rate system and the timing of the reform and specific measures could come as a surprise". Our interpretation of this cryptic statement is that the Chinese are ready to institute what has been on the cards for quite some time - a revaluation of the renminbi against the US$. While such a step will have an impact on the status quo, we believe that the initial market reaction discounted a bigger adjustment than will eventuate. Any currency realignment is likely to be small - especially at the outset.
The second scare arose after the most recent policy meeting of the US Fed, when it highlighted its concern with the continued run in commodity prices, and more specifically, oil. It was argued that were these trends to continue, and given that a buoyant consumer would allow the manufacturing and corporate sectors to pass on price increases, US inflation could rise to levels beyond those expected by the Fed. This immediately raised concerns that short rates in the USA would rise beyond expectations, which in turn led to the US$ turning trend against its major trading partners as well as emerging market currencies. Let's put the inflationary fear into perspective: the recent National Federation of Independent Businesses Survey of Small Businesses showed that firms continue to plan price hikes, and an increasing number of firms reported actual price increases. Until recently, most of these price hikes were limited to the crude and intermediate level, but core finished goods prices are now rising at 2.7% p.a. Should these commodity prices that have run so hard average current spot levels for the rest of 2005, the impact on core is expected to add no more than 0.2% to 0.3% p.a. Consensus expectations place the Fed Fund rate at 4% by year-end, approximately 1% above core inflation, which is a turnaround from -1% three years back and a considerably more prudent monetary backdrop.

Nedbank Global Equity's (NGE) noncash assets are housed in UK-based Marathon Asset Management's (MAM) institutional Global Equity Fund. Little detail of the portfolio is made available but, says Nedcor's London CIO, Rowan Williams-Short, it seeks shares with low p:es and high dividend yields and has holdings in about 300 stocks in 25-30 countries. MAM received the Global Investor award for "best global equities manager" in 2004. NGE is temporarily closed to new investment.

Financial Mail - 11 March 2005