The fund is 94% invested in Marathon Asset Management's global equity fund, 3% in rand cash and 3% in euros, sterling and dollars.

The first quarter of 2008 was dismal for equities. Not a single component country of the MSCI World Index managed a positive return in local currency and only Denmark eked out a positive return in US dollars. Of the larger markets, the US lost 9.3%, Japan 7.7%, the UK 10.6%, Germany11.7% and Hong Kong 18.9%.

In the past 12 months, regional allocation was the strongest contributor to relative performance with the overweight to South East Asia and the underweight to Japan adding much of the value. Stock selection and currency allocation both had a negative impact on performance. North American stock selection was a detractor from performance as a variety of holdings endured a difficult quarter. The US healthcare sector, including Bristol-Myers, usually defensive in nature due to its economically insensitive revenues, underperformed the S&P 500 by almost three percent. The stellar Canadian performers of 2007, such as Rogers Communication and Bombardier faltered in the first quarter of 2008. Hong Kong experienced a strong ripple effect from China but overall Hong Kong stock selection was positive as Jardine produced a strong set of results. Stock selection was also positive in Europe with Saipem, the oil service group, benefiting from the oil price exceeding $100 and ArcelorMittal reporting a strong set of figures. The large underweight to UBS was favourable too. Vestas, the wind energy stock, was a beneficiary of the rising oil price, while Rio Tinto was pushed higher in the light of BHP Billiton's expression of interest.

The portfolio has been managed over the past nine months on the premise that financial problems would be constrained and that economic growth would slow, but we would not enter recession. In consequence, a fully invested equity position has been maintained and selective purchases made in stress-affected sectors like banks and property. This optimistic thesis has been severely tested by the market in recent months as the financial environment has worsened at year-end, rather than bottomed out, as we expected. Financial firms are being forced by regulators into fire sale equity issues based on market prices, which seem to discount extraordinary levels on defaults on loans. As we all know from the financial press, wholesale finance markets are gridlocked. At the risk of appearing Panglossian, the financial sector's problems are finite, the monetary authorities have adopted a very flexible policy which effectively throws money at the problem, there is little sign of contagion either geographically or outside the mortgage sectors despite higher loan spreads.

Finally, outside the financial sectors companies continue to buy back their shares in the belief they are undervalued. The strategy of buying into sectors characterised by high levels of uncertainty and stress seems reasonable. The valuation elastic in the market continues to stretch and these periods are always eventually followed by price action, which favours the dogged contrarian buyer. Investors who can afford to take a longer-term view have a significant competitive advantage in the current client environment, in our opinion, over those who are preoccupied with one quarter's performance.

The fund is 92% invested in Marathon Asset Management's global equity fund, 4% in rand cash and 4% in euros, sterling and dollars. The following performance figures are for the Marathon fund and are all in US dollars.

The underperformance in Q2 2008 is largely attributable to geographical allocation and stock selection. The underweight to Japan, which was one of the better performing markets during the quarter, was one of the most disadvantageous views. Stock selection was, however, the primary cause of the underperformance, particularly in the emerging markets and the US. The largest Philippine holdings, Ayala Corporation, a conglomerate, and Globe Telecom, one of its subsidiaries, suffered as the market dropped almost 18% over political fears concerning the greater interventionist stance of the government towards pricing. In the US, Scotts Miracle-Gro, the garden product producer, and American Greetings, the greeting card company, both detracted from performance after reporting a fall in profits due to rising input costs. Washington Mutual, one of the recently purchased US financials, was also amongst the major detractors, falling in response to an upward revision to its loss estimates. Conversely, a number of US holdings grace the list of the best performers. Superior Essex rose considerably after Seoul-based LS Cable agreed to buy it, while Costco, the wholesale retail club, displayed strength with robust sales figures. Bombardier, the Canadian aerospace and rail specialist, contributed the most to relative performance over the quarter. It gained around 35% after reporting strong results and a healthy order book, both illustrating the progression of its turnaround. Outside of the emerging markets and North America, stock selection was broadly neutral. In Europe, Enodis, the industrial catering equipment company, was the best performer as it benefited from a contested bid situation, while Fiat, the auto group, detracted from performance as its strong recovery is being challenged by soaring oil prices and declining auto sales. In Japan, the portfolio benefited from holding a number of companies which are passing on price increases such as Nippon Suisan Kaisha, the seafood processing business, and Seven & I Holdings, the convenience store operator.

The underperformance over a one-year period is primarily attributable to currency allocation and stock selection. The underweight to the strong euro and the overweight to the dollar-linked Hong Kong currency have both had prominent effects on performance.

Portfolio turnover was minimal over the quarter. In the US, the main activity, once again, centred on purchases of embattled financials including additions to Citigroup, Merrill Lynch, Washington Mutual and, the homebuilder, Pulte Homes. In Canada, an addition was made to Abitibibowater, the paper and pulp producer, where supply is being reduced and prices gradually increased. In Europe, the tentative purchase program of a few depressed banks initiated last quarter continued in the second quarter and included additions to positions in HBOS, Bradford & Bingley and Barclays. As with the US, these purchases appear to have been premature given the subsequent performance of most financials. The Rio Tinto position was halved and the proceeds were reinvested in BHP Billiton in order to mitigate the risk of the bid for the former by the latter being either blocked or aborted. The position in Sogecable, the Spanish pay-TV group, was eliminated as a result of a tender offer for a significant stake in the company. In Asia ex Japan, activity was negligible, while in Japan, the position in Hitachi Chemical, which was initiated last quarter, was increased. The company's niche portfolio of advanced technology is currently undervalued by the market. The holdings in Kirin and Kao were trimmed to take advantage of recent strength, although, the dominant competitive positions of these companies remain highly value.

Although the equity markets have been flat this quarter, the outlook appears to have darkened considerably as booming commodity prices squeeze the profits of many firms and may yet alarm central banks into tight monetary policies, which would depress both profits and valuations. For the most part, central bankers appear to believe that the unsightly inflation statistics are a blemish on the landscape that will shortly disappear, and there is little sign of any abandonment of the benign policy put in place to help financial firms through the mortgage crisis. Investors have been traumatised by the events of the past year and the sense is that a major flight to safety has taken place. Value-type bets made in response to widening valuation spreads have clearly been premature and this is showing up in disappointing near-term performance statistics. Outside the banking/financial sector corporate cash flow continues to be robust (over 60% of US firms have free cash flow yields in excess of treasury) and firms continue to buy back their stock, a course of action we normally endorse. Equities in general continue to look much better than bonds, which now offer yields that are generally below inflation rates. It follows that if there is an inflation scare, equities should hold up tolerably well (because of their inflation hedge characteristics). On the other hand, if inflation fears ultimately prove to be little more than a mirage, the combination of strong corporate cash flow, reasonable valuations and extreme investor pessimism would lay the foundations for a very strong rally. Accordingly, while not actually bullish about short- to medium-term prospects, neither are we especially bearish. Staying the course appears the more appropriate strategy given the facts as we see them, recognising that occasionally this will call for "grace under pressure". When the turn in current trends comes, whenever it does so, the global portfolio is positioned to produce significant outperformance.

The fund is 94% invested in Marathon Asset Management's global equity fund, 3% in rand cash and 3% in euros, sterling and dollars.

The first quarter of 2008 was dismal for equities. Not a single component country of the MSCI World Index managed a positive return in local currency and only Denmark eked out a positive return in US dollars. Of the larger markets, the US lost 9.3%, Japan 7.7%, the UK 10.6%, Germany 11.7% and Hong Kong 18.9%.

In the past 12 months, regional allocation was the strongest contributor to relative performance with the overweight to South East Asia and the underweight to Japan adding much of the value. Stock selection and currency allocation both had a negative impact on performance. North American stock selection was a detractor from performance as a variety of holdings endured a difficult quarter. The US healthcare sector, including Bristol-Myers, usually defensive in nature due to its economically insensitive revenues, underperformed the S&P 500 by almost three percent. The stellar Canadian performers of 2007, such as Rogers Communication and Bombardier faltered in the first quarter of 2008. Hong Kong experienced a strong ripple effect from China but overall Hong Kong stock selection was positive as Jardine produced a strong set of results. Stock selection was also positive in Europe with Saipem, the oil service group, benefiting from the oil price exceeding$100 and Arcelor Mittal reporting a strong set of figures. The large underweight to UBS was favourable too. Vestas, the wind energy stock, was a beneficiary of the rising oil price, while Rio Tinto was pushed higher in the light of BHP Billiton's expression of interest.

The portfolio has been managed over the past nine months on the premise that financial problems would be constrained and that economic growth would slow, but we would not enter recession. In consequence, a fully invested equity position has been maintained and selective purchases made in stress-affected sectors like banks and property. This optimistic thesis has been severely tested by the market in recent months as the financial environment has worsened at year-end, rather than bottomed out, as we expected. Financial firms are being forced by regulators into fire sale equity issues based on market prices, which seem to discount extraordinary levels on defaults on loans. As we all know from the financial press, wholesale finance markets are gridlocked. At the risk of appearing Panglossian, the financial sector's problems are finite, the monetary authorities have adopted a very flexible policy which effectively throws money at the problem, there is little sign of contagion either geographically or outside the mortgage sectors despite higher loan spreads.

Finally, outside the financial sectors companies continue to buy back their shares in the belief they are undervalued. The strategy of buying into sectors characterised by high levels of uncertainty and stress seems reasonable. The valuation elastic in the market continues to stretch and these periods are always eventually followed by price action, which favours the dogged contrarian buyer. Investors who can afford to take a longer-term view have a significant competitive advantage in the current client environment, in our opinion, over those who are preoccupied with one quarter's performance.

The fund is 93% invested in Marathon Asset Management's global equity fund, 3% in rand cash and 4% in euros, sterling and dollars. The Marathon fund again outperformed the MSCI World Index for the year and remains well ahead of this benchmark over the longer term.

In the past 12 months regional allocation was the strongest contributor to relative performance with the overweight to the buoyant Asia ex-Japan markets adding much of the value. Currency allocation also had a positive effect on performance, especially the underweight position in US dollars and the overweight in Canadian dollars. Stock selection was positive too, but was the weakest area. For example, Cablevision remained weak in the wake of the "no" vote on the takeover by the Dolan family. The long-term prospects for the company remain as attractive as ever. Superior Essex also underwhelmed. On the other hand, Priceline.com, the US online travel agency, performed robustly following a transformation after the acquisition of a European online hotel booking company. Costco did well despite a horrible retail share price environment. Other notable performers were HCI (SA), Ayala (a Philippine conglomerate) and its subsidiary, Globe Telecom, New World Development (a Hong Kong property conglomerate) and some defensive Japanese holdings. In Europe, two wind energy stocks benefited from the rising oil price.

Turnover remained low overall in the fourth quarter. A notable move was the portfolio's increase in exposure to US financials. The sub-prime crisis has hastened the nadir of share prices resulting in significant relative and absolute value in a number of US financial stocks.

Despite much year-end pessimism, if a broader view is taken equity valuations still appear to be modest relative to fixed income securities. This conclusion is supported by record corporate buyback activity. Of course the US housing market activity will soften, but this should be offset by the restorative effects of low real interest rates and an undervalued dollar. A US recession is unlikely in an election year. US financials are now as cheap as in the 1990-92 period, which also featured a real estate crisis.