As the third quarter ended, grave concerns over the Greek situation continued, with both banks and the European Financial Stability Facility (EFSF) ready for a default. The US witnessed the rebirth of Operation Twist (last seen in 1961) with a $400 billion plan to buy bonds, while poor news flow in both the US and Europe showed manufacturing at a standstill. In the emerging markets, there was a general loosening of monetary policy, and fears of a hard landing in China are increasing.

Over the month we made a number of changes within the portfolio, all slightly defensive in nature given that growth and earnings expectations are still coming down. One change was to increase the duration of our fixed income component as shorter-dated yields are now very low and we feel the demand from pension funds for the long end dampens the risk of rising yields at the long end of the curve. This should also serve as an effective diversifier when equity markets are weak, and while our gold sale in July was a bit premature, the $200 price fall over a five-day period (during which equities also fell), justifies our caution on the metal. Broader commodities were also weak over the month as the outlook on Chinese demand deteriorated, and mining stocks were worst hit over the period, an area where we have little exposure, contributing to relative performance over the month.

Overall, the relative performance was marginally positive during the month, with the more defensive nature of our equity book ensuring that the portfolio's equity exposure proved slightly more resilient than the benchmark during the month. In general, markets looked to be range bound, so we tried to reduce some risk at the top of this range by reducing some of the more economically sensitive names such as Saipem and Total.

The market's attention is clearly on Europe and we do not believe the short term offers a solution that is amenable to both politicians and the electorate. The plans suggested by market commentators, central bankers and politicians are wrought with implementation difficulties, and the best case scenario for Europe seems to be a slow and bumpy recovery, the worst case an aggressive recession. Given this outlook, we remain underweight equities, but with a focus on those companies with robust earnings streams. While valuations are attractive by historical standards, without a resolution our bias is to sell into rallies, which often look driven by hope and rumour rather than the improving real demand that is required.

A wall of worry with escalating tensions in Greece and increasing fears of a global slowdown hit the markets during the first half of June. However, afterwards, a series of events provided some relief: signs of easing in Japanese supply chain disruptions; a further drop in oil prices thanks to the IEA (International Energy Association) decision to release some of their oil reserves; more positive US manufacturing data; and a short-term resolution of the Greek debt crisis.

Against this backdrop, the US Federal Reserve ended its quantitative easing program, but did not point to a tightening anytime soon, while the ECB signalled its intention to hike rates for a second time this year in July. Conversely, the Bank of England, on the back of weak domestic demand, moved away from an interest rate hike with further asset purchases seen as a distinct possibility if the economic situation worsens.

Early in the month, fearful of short-term market weakness, we top sliced a number of our energy and emerging market holdings, slowly reinvesting the proceeds into companies with more defensive earnings, such as WalMart and Time Warner. We also began a position in Danone, which we believe is well placed to exploit the health and wellness mega trend; organic growth has recently been around 7% and we expect this to continue as the same trend gains traction in emerging markets, where Danone already generates 49% of it sales. Global equity markets fell by 5-6% (peak to trough) and banks, particularly in Europe, by substantially more. Into this period of weakness we became increasingly convinced that banks were priced too pessimistically and we took advantage of this through a purchase of Intesa San Paolo (an Italian bank), which has recently raised capital and does not have significant exposure to peripheral European debt. This transaction has begun to reduce our long held underweight position in banks. One can never time the markets perfectly, but - despite initial weakness - the position has now recovered and is moving usefully ahead.

At the time of writing, Standard & Poor’s claim to view the French solution to the Greek debt issue (involving rolling over the debt) as a default. Consequently, European politicians must head back to the drawing board, highlighting that uncertainty still remains. As such, keeping our equity weighting lower than would otherwise be the case - by looking at asset valuations alone, and layering in call options to protect against a ‘white swan event’ (ie a sharp upward move in markets) - seems to us to be an eminently sensible way of positioning the portfolio during the current period of turbulence.

March was marked by three major events.

First in line was the dramatic earthquake in Japan, along with the subsequent nuclear crisis and its potential economic consequences. The Bank of Japan has responded swiftly to the disaster by providing liquidity to the banking sector, increasing quantitative easing, and leading the first G7 foreign exchange intervention since 2000.

Secondly, tensions in the Middle East intensified further with NATO's intervention in Libya, and large demonstrations in Bahrain and Syria.

Finally, the European sovereign crisis also remained centre-stage. Indeed, not only did the EU deal on the bailout package fail to calm market fears, but the Portuguese government fell, fuelling expectations that Portugal would seek financial assistance sooner rather than later.

Against this backdrop, and despite nascent signs that the manufacturing sector is losing momentum, G3 central banks hinted at starting their exit strategy soon, with the ECB notably hinting at a rapid rate hike.

Early in the month, we took the decision to reduce the equity exposure in the face of waning market sentiment, the spread and escalation of demonstrations in the Middle East, and elections in Europe. We sold Delta and FedEx(two stocks we felt were negatively exposed to the rising oil price) and then, using futures, quickly reduced our exposure by a further 5%. This meant we were more defensively positioned when the Japanese tragedy occurred, and were able to protect value as the markets fell some 6-8% in response. We had a minor overweight to Japan, which we chose to maintain; given the international focus of our companies, we do not expect their revenues to be impacted, and the portfolio did not unduly suffer. As the crisis unfolded and (in our opinion) a larger scale nuclear disaster looked less likely, we re-built our equity exposure at these lower levels. This month, we introduced MTN-a telecommunication company operating predominately in Africa and the Middle East, as well as taking the opportunity to reduce our bond weighting further.

Equity markets (and risk assets more generally) have been remarkably resilient given the conflux of recent events. In particular, there has been some recovery in the emerging markets (the best performing area globally during March), which has benefited the portfolio's relative equity performance. At the same time, while government bond markets increased in value during the period of risk aversion, the gains were not significant and have subsequently reversed, remaining negative since the turn of the year and giving us increased conviction in our overweight equity stance. We believe the forthcoming earnings season will again prove that companies are in bad health and that valuations are attractive both in isolation and against other assets. And so while it is somewhat a consensus opinion (which makes us nervous), we continue to believe that equities will advance over the coming months.

In the US, the economic outlook has brightened further, thanks not only to still better-than-expected macro-economic data and loose monetary conditions, but also to a new economic stimulus (the extension of the Bush's tax cuts and unemployment benefits). By contrast, most of the emerging world has continued to tighten monetary policy in order to bring high inflation back under control and avoid overheating. China hiked interest rates by 25 basis points on Christmas day for the second month in a row after a series of measures proved ineffective in draining liquidity. In Europe, the ECB decided to maintain its loose monetary policy in order to help contain the euro crisis. In the UK, facing high inflation on one hand andthe austerity-related downside risks to growth on the other, the Bank of England also kept its monetary policy unchanged.

December provided strong positive returns across most risk assets. The portfolio mildly outperformed the composite benchmark on a relative basis, driven largely by our overweight position in equities which outperformed fixed interest.

Within the fixed interest component of the portfolio, we have strengthened the average portfolio rating through purchases of a US Treasury and also a US Inflation-Linked TIP as we believe inflation pressures could potentially increase due to higher input costs.

During the month we initiated a new position in MGM Resorts in the US. We believe this company, which operates gaming, hospitality and entertainment resorts, will particularly benefit from the ongoing recovery during 2011-2012 in economic activity, particularly as unemployment falls and demand for conference centres and entertainment improves.

As part of this domestic recovery we also added to our existing position in Automatic Data Processing, which exhibits a AAA balance sheet, strong free cash flows and operational leverage to improving office activity.

We also continued to add to our new position in Umicore, a materials technology company specialising in clean technologies such as precious metals recycling, automotive catalysts, battery components and thin film products. The company fits into our Security of Supply theme, based on its unique opportunity to exploit the "urban mine" through extraction of 17 metals from sources such as e-scrap, old auto catalysts, and mining waste streams.

During December, our European equities were the stand-out performers and our exposure to Japan and emerging markets produced poor returns on a relative basis. Japan Steel Works was the only equity to be sold during the month that contributed to this negative relative performance. The position was sold as it has become increasingly clear that its competitive advantage has been eroded by emerging market new entrants much quicker than we had previously anticipated.

Having now witnessed the traditional Santa Klaus year-end rally in risk assets, we turn our attention to 2011. Within equities, we believe three main themes will dominate. Companies exhibiting operational excellence should attract a premium to the broader equity market. Western companies will continue to benefit from expansionary policy driving economic recovery as opposed to emerging markets such as China, India and Brazil that exhibit more expensive equity markets and are instituting fiscal and monetary tightening measures to ward off inflation.

Finally, thosecompanies that have disruptive technologies should be able to break down barriers to entry and produce exiting growth potential. We also believe that commodities and property will be well supported by monetary expansion programmes.