The fund returned -0.4% for the quarter, against 3.3% from the benchmark MSCI World Index (dividends reinvested). For a rolling 12-month period, the fund's return of -2.0% (in rands) is behind that of the benchmark's -0.6%.

The quarter ended on a very strong note as markets rallied in September on improving economic data and discussions about further quantitative easing. Early in the quarter, however, markets had worries about a double dip recession and the results of the European banking system stress test. Once the Fed and BoE began openly discussing another round of quantitative easing, markets responded positively to such an extent that the further bail-out of the Irish banking system didn't seem to have much impact. Today, Western economies are delicately poised and markets will remain volatile on the newsflow. Asian economies remain strong and indeed China is taking further steps to temper growth, especially in the housing market.

In terms of regional equity performance, Asia ex-Japan was the best performing region, rising 22.2% (in US dollar terms), while Japan was the worst performer at only 5.9% (in US dollar terms) in the face of sustained yen strength. European countries mostly had good quarters with the region as a whole returning 19.4%. North America lagged the MSCI World Index returning only 11.7%. The fund's regional positioning was a positive contributor to relative performance for the quarter.

Overall, the underlying managers detracted the relative underperformance this quarter. This was primarily as a result of their fairly defensive positioning in July which cost them dearly. Underperformance was common in all regions. Veritas Asia Fund, in particular, could not keep pace with the very strong markets. The manager is cautious and carried a high cash balance this quarter primarily driven by concerns over China's tightening policies and its broader effect in Asia.

In Europe, Ruffer lagged the index as would be expected in such strong markets. Although they have been increasing equity exposure of late, they are still cautious. The Legg Mason funds, our core US exposure, had a tough quarter, especially the Smaller Companies fund. Both funds had an excellent 2009 but have struggled with the volatile markets this year.

Outlook
We expect volatility to continue as the global economy slowly recovers in the months ahead. The latest concerns relate to potential currency wars as the crisis nations seek to weaken their currencies against the major trading partners. In this respect, China is the main target but appears to have no intention of revaluing the renminbi and is instead supporting the euro and yen, keeping those currencies strong. Heightening tensions surrounding this issue are of concern but we would hope that the issue is resolved without resorting to protectionism. We have said in the past and continue to believe that the outlook for equities is very positive especially when compared to the expected returns on cash and bonds.

Portfolio manager
Tony Gibson

The fund returned -9.1% (in US dollar terms) for the quarter, against the benchmark MSCI World Index's -12.5%. For a rolling 12-month period, the fund's return of 10.1% is behind the benchmark return of 10.8%.

Markets fell sharply during the second quarter as the sovereign credit crisis continued amid early signs that the global economic recovery has started to lose steam. A trillion dollar bailout agreement between the euro states brought a brief calm to the markets in April but actions taken to cut budget deficits in Europe have raised fears of a double dip recession. Speculation of a breakup of the euro led to euro weakness during the quarter but eased during June, allowing the currency to rise off its recent lows. Adding to market concerns were the drastic steps taken by the Chinese government to reign in rampant real estate speculation. Oil fell $10 as economic woes increased and gold rose strongly, briefly reaching a record of $1257/oz before the end of June.

In terms of regional equity performance, Japan was the best performing region, falling 10.1% (in US dollar terms). North America was next best, falling 11.4%. Given the region's current troubles, Europe was the worst performing region, falling almost 15% on the back of a weakening euro. Asia ex- Japan fell 14.2%. The fund's regional positioning therefore detracted from performance for this quarter.

The underlying managers had a significant impact on the relative outperformance this quarter. Cantillon Global Equity was the biggest contributor, falling only 3.4% compared to the MSCI Global Equity Index's decline of 12.5%. Cantillon has a very strict investment strategy of investing in high ROE, low PE stocks and the outperformance, generated mostly in June, was generally across the portfolio rather than any one or two individual stocks.

Cantillon remain fully invested at all times. Veritas Asia fell 8.2% significantly outperforming the market decline of 11.2% (MSCI Pacific ex-Japan in US dollar). The manager, Ezra Sun, has a unique insight into China and this has been key to his excellent long-term performance. However, he has also invested well in other countries and his keen sense of currency movements has led to an effective hedging strategy when required.

Ruffer European protected capital well in the drawdown as would be expected given the put option overlay that the manager normally has in place. This became even more important in recent months as he increased his equity exposure from its credit crisis lows to around 75%.

Positive contributions also came from Coronation Global Emerging Market Fund, Morant Wright Japan Fund and Contrarius Global Equity Fund.

Legg Mason US Equity Fund had a poor quarter and was the biggest detractor from overall performance over the quarter. Edinburgh Partners Global Fund also marginally underperformed.

Outlook
We continue to see fundamental value in equity markets and our managers speak eloquently on the many companies they invest in that will continue to achieve double-digit growth even with the lower global growth prospects. Despite recent pessimistic newsflow, we believe that corporate earnings will remain robust and may be well ahead of the flat expectations of sell-side analysts. The crisis in Europe is now fully reflected in the market but may generate some volatility in the near term as political and policy issues are dealt with. Another equity market rally may be some time away but in the interim, this is a good environment for the fundamental stock picking managers in this portfolio.

Portfolio manager
Tony Gibson

The Coronation World Equity ZAR Fund of Funds returned 2.71% (in US dollar terms) for the quarter, against 3.4% from the benchmark MSCI World Index. For a rolling 12-month period, the fund's return of 46.1% is behind the benchmark's 53.2%.

The first quarter was dominated by increasing concerns over sovereign credit risks. After Dubai in late 2009 the so-called PIIGS (Portugal, Ireland, Italy, Greece and Spain), led by Greece, tested the credit markets and the unity of the European Union. Despite Greece putting in place the required 'austerity package' of budget cuts, political wrangling amongst its European partners failed to convince the market that the Union would provide a bail-out package. Ultimately, a deal which included the IMF was agreed upon but at the time of writing in early April, this too appeared to be in jeopardy. In addition, US President Obama also shocked the market in early January with the announcement of a 10-year tax for banks and a number of other harsh regulatory proposals. However, it was not all bad news and, after a volatile start to the quarter, the markets took encouragement from continued signs of economic recovery and the ongoing favorable monetary policy environment to recover strongly in March.

In terms of regional equity performance, Japan was the best performing region rising 8.3% (in US dollar terms). North America also had a strong month ending up 5.5%. Asia ex- Japan returned 3.1% while a weakening euro resulted in a negative 1.7% for Europe (in US dollar terms). The fund's regional positioning was therefore the main driver of the relative underperformance for the quarter.

The managers as a whole also detracted slightly from performance but this was based on a combination of mixed performance. The Asia managers were all behind their benchmark, most notably Prusik Asia which had a very poor quarter, performing badly in both bull and bear markets despite being conservatively positioned and cautious. UOB Kinetics and Ruffer European also marginally detracted from performance.

The Cantillon Global Equity fund had a very strong quarter, returning 6.7% compared to the MSCI World's return of 3.4%. The two Legg Mason US funds also had excellent quarters, both beating the S&P 500 Index although the Smaller Companies fund benefitted from strong rally in small capitalization stocks.

We made a number of changes to the portfolio during the quarter. We redeemed Prusik Asia and Comgest Nouvelle Asie in full and made sizable redemptions from UOB Kinetics Paradigm and Edinburgh Partners Global. These redemptions were partly due to performance issues but also due to our wish to change our regional exposures. The proceeds were primarily invested in two new funds with some being used to top up existing investments such as Veritas Asia.

The first new fund is Contrarius Global Equity funds, run by Stephan Mildenhall. This is the UCITS version for his global offering after he launched a Jersey domiciled fund in January 2009 with stunning success. The second fund was Coronation's Global Emerging Market fund which has a strong two-year track record and gives exposure to emerging markets other than just Asia, namely Russia, Africa and South America.

Outlook
We are clearly of the opinion that international equities offer the best relative attractions when compared to the alternatives of bonds or cash. The equity markets concerns regarding both the threat of stimulus withdrawal on global economic activity and the viability of public finances are masking the attractions of many companies. The equity market rating of these companies still fails to capture their strong fundamentals and, as suggested by the corporate bond market, this seems an unsustainable valuation relative to global bond markets. We would anticipate that this discrepancy will narrow as these characteristics continue to translate into attractive cash returns to shareholders in the form of dividends. Equity prices will not repeat last year's dramatic rally for a long time, and there will of course be falls from time to time - sometimes even sharp ones. That said, we remain convinced that the poor equity returns over the past 10 years will not be an enduring trend. We predict that in 10 years' time the compound returns from equities will be well ahead of that received by government bond holders.

Portfolio manager
Tony Gibson

The fund returned 3.0% (in US dollar terms) for the quarter, against 4.2% from the benchmark MSCI World Index. Over the rolling 12-month period, the fund's return of 33.2 % is ahead of the benchmarks 30.8%.

2009 closed on a strong note, providing a satisfactory return for the year compared to its first two months in which global equity markets fell by almost 20%. Global equity markets rose over the quarter, while corporate bond spreads tightened further. Despite a meaningful recovery of the US dollar against all other currencies, both soft and hard commodities continued to rally. Mining and commodity stocks had a strong quarter as did IT and healthcare stocks. Financials fell hard after renewed regulatory concerns, the Greek Sovereign Debt downgrade as well as huge capital issuances from Bank of America, Wells Fargo and Citigroup to facilitate their exit from the Troubled Assets Relief Programme (TARP). US economic data continued to improve and the recovery appears to be on track, so much so, that the Fed is already looking to reduce its stimulus efforts. A change in Government in Japan followed by an announcement that deflation is no longer acceptable may bode well for the future but in the interim, Japan continues to struggle. Problems in various pockets of Europe caused some stress in the markets but, as in the US, the recovery appears to be taking hold.

In terms of regional equity performance, North America was the best performing region, appreciating 5.96% (in US dollars) over the quarter. However, US dollar strength diluted otherwise strong returns from other regions. Asia continued to power ahead by 5.2% over the quarter, with Europe some way behind with a 3.3% appreciation, following sovereign credit downgrades in Greece and Ireland. In US dollars, Japan was by far the worst performing market, falling 2.76% over the quarter due to both poor returns from the equity market and a weakening yen. The fund's regional underweight to North America detracted from overall performance for the quarter although this was somewhat negated by the overweight to Asia.

Manager performance was a net detractor from performance this quarter, especially in Japan and North America.

Morant Wright and IFDC both returned worse than already poor Japan market returns. Over recent years we have been in line to overweight Japan given the attractive valuations in the market. However, returns have somewhat tested our resolve and during the quarter we decided on a new strategy for Japan. Hence, we redeemed IFDC Japan and took Morant Wright Japan to a higher weighting, thereby getting our core Japan exposure through one fund. To bring us in line with the index weighting we will rely on our Global managers who can invest on both an opportunistic and long term basis in the country as and when required.

Although annual returns were good, none of our US managers managed to outperform the S&P 500 this quarter. 2009 proved to be a return to form for both Legg Mason and UOB Kinetics, returning 39.6% and 40.3% respectively by keeping faith with many core positions and adding new ones in the depths of the market downturn. We expect them to continue their recoveries.

Ruffer European had a good quarter, finishing ahead of the MSCI European Index. Despite a gradual increase in equity exposure, the manager remains cautious and is very selectively adding quality large cap stocks and riskier, but attractive small cap stocks which have traditionally been the fund's main alpha generators.

During December, we also added a new fund, the Legg Mason US Smaller Companies fund, run by Whitney George of Royce & Associates. As the name suggests, this fund invests in US small cap companies, a company specialisation since it was founded by Charles Royce in 1972. Royce follows a disciplined value approach and have established themselves as a premier small cap manager.

Outlook
In developed markets, leading indicators such as industrial production and consumer credit statistics appear to have bottomed. Earnings have surpassed depressed expectations and easy year-on-year comparisons abound for companies and economies. However, many management teams in the real world have no visibility and remain sceptical of a coming economic rebound, especially a strong one. The sustainability and strength of the recovery will no doubt be resolved in 2010, but we are confident that the easy money across the equity markets was made in 2009 by those investors adopting a momentum, or nondifferentiating, buying approach. By comparison, investors that do the hard work in analysing the constituent sectors of the markets and stocks will continue to be rewarded as they find fundamentally undervalued stocks.

Turning to the overall level of markets, even after the recent sharp recovery in equity markets, returns over the past ten years have still been unusually poor, in fact negative in most markets. Certainly taking long-term 100-year history as a guide, this fact would lead one to expect above average returns over the next ten years. There are many uncertainties and risks facing the financial system as we move into 2010. These risks will multiply as long as politicians remain obsessed with being re-elected rather than taking the often painful decisions that are needed were a longer term perspective to be taken. All indications are that we are now moving into yet another bubble era, fuelled by easy money and effectively free money. It is however also true to say that this new bubble era will inflate more slowly than previous ones, due to the realisation that rules governing the banking sector need to be tightened, thereby averting another credit fuelled bubble for many years to come.

Investors are therefore faced with a conundrum. That is, if they subscribe to a very bearish medium term outlook, they must therefore also subscribe to the view that interest rates will remain at (probably) negative real rates for the next few years. How therefore does an investor preserve wealth in real terms? Under this scenario it would seem that a portfolio of intrinsically undervalued global equities will prove to be the only sensible investment which will produce attractive income and capital returns to long-term investors.

Portfolio manager
Tony Gibson Client