The fund fell 1.5% (+4.64% in ZAR) for the quarter, against -2.1% (+3.93% in ZAR) from the benchmark MSCI World Index (dividends reinvested). For a rolling 12-month period, the fund's return of 7.7% (21.02% in ZAR) is behind the benchmark's 12.8% (26.91% in ZAR).

Global equity markets fell over the quarter after a particularly weak September. Commodities and emerging market equities suffered steep declines on the back of geopolitical and economic concerns. Russia's ongoing destabilising influence in the Ukraine, the military action against ISIS in the Middle East, the Scottish independence vote and the growing concerns over the increasing spread of the Ebola virus unsettled investors who were already grappling with a sharp divergence in business cycles among major nations. The improved forecasts for US growth have increased shortterm rates and strengthened the US dollar. The eurozone, however, is struggling to grow. The looming threat of deflation convinced the ECB to cut interest rates further and take other steps to bolster the flow of credit.

North America was the best-performing region, rising 0.6% (in US dollar terms), while Europe performed the worst, falling as much as 7.0% (in US dollar terms). Japan declined 2.2% and Asia Pacific ex-Japan fell 5.9% (both in US dollar terms). The fund's regional positioning had a marginally positive impact on performance during the quarter. Among the global sectors, IT and healthcare were two clear leaders over the quarter, being the only sectors with positive returns (of 3.4% and 3.2% respectively). Energy (-10.0%) and materials (-7.2%) were particularly hard hit as commodity prices tumbled on the back of a stronger US dollar and slower global growth. On a look-through basis, the funds benefited from an underweight position in energy and commodities and an overweight exposure to IT. However, this was offset by an overweight allocation to the consumer discretionary sector and an underweight position in healthcare. Although there were one or two good performers, many of our portfolio investments were line or behind their benchmarks for the quarter. Contrarius Global Equity had, for the fund, a particularly weak quarter with a negative alpha of 6%. Large positions in The New York Times (-26.2%), Sohu.com (-12.9%), J Sainsbury (-21.3%), Ocado (-28.6%) and others all worked against the fund over the period.

The Coronation Global Emerging Market fund also detracted from performance over the quarter after the sanctions against Russia impacted on positions such as Magnit (-2.1%) and X5 Retail (-14.5%). Its holdings in Cognizant Technology Solutions (-8.5%) and Porsche Automobil (-16.6%) were affected by the general malaise in emerging markets over the quarter. Our Japan funds all detracted from performance during the quarter, as did Cantillon Global Equity and Harris US Concentrated. Egerton Europe had a solid quarter with alpha of 2%, and benefited from exposure to Gilead Sciences (+8.4%), Airbus Group (+1.8%), Crown Castle International (+8.4%) and Canadian National Railway (+14.6%).

Sands Capital Growth Fund made a positive contribution to performance this quarter, as did the Viking Global Fund. Sands benefited from positions in Nike (+15.0%), ITC (+13.9%), Vopak (+19.7%) and Charles Schwab (+9.1%), while Viking had positions in Valeant (+4.0%), Lowes (+10.3%) and Lyondell Basell Industries (+11.3%). During the quarter we exited the Memnon Europe Fund and added to Adelphi Europe, an existing position. We also initiated a small position in Harris Global Concentrated Fund and switched Japanese managers, moving from Polar Japan to Arcus Japan.

Outlook
The environment for global equities is changing. A period of low volatility, favourable economic recovery and stable geopolitics appears to be coming to an end. Unrest in the Middle East and continued aggression from Russia coupled with the eventual withdrawal of liquidity in the US and a potential slowdown in China could prove very unsettling to investors. While overall valuations remain reasonable, it is at times like these when investors become more rational and valuations matter far more than just a good story. As the underlying managers are valuation-driven investors, this should prove beneficial for our fund.

Portfolio manager
Tony Gibson

The fund delivered a return of 4.2% (in US dollar terms) for the quarter, against 5.1% from the benchmark MSCI World Index (dividends reinvested). For a rolling 12-month period, the fund's return of 18.5% lags that of the benchmark return of 24.7%. In rand terms, this translates into a fund return of 5.4% for the quarter versus the benchmark (+6.0%) and 27.9% for a rolling 12-month period compared to the benchmark's 34.3%.

Global equity markets rose strongly in the second quarter of the year, with emerging markets bouncing back from their recent lows. This was despite growing deflationary concerns in China and Europe, and disappointing growth numbers from the US in the first quarter of 2014. The market rally appears to have been driven by three main factors: deescalation of tensions between Russia and the Ukraine; speculation that Chinese authorities will adopt stimulus measures; and a surge in global mergers and acquisitions (M&A) activity.

Japan was the best performing region, rising 6.7% (in US dollar terms), while Europe performed the worst, gaining only 3.6% (in US dollar terms). North America rose 5.5% and Asia ex-Japan increased by 4.4% (both in US dollar terms). The fund's regional positioning had a negative impacton performance during the quarter.

Among the global sectors, there were two clear leaders over the quarter: energy (+11.2%) and utilities (+5.7%) were the only two sectors to outperform the overall market. Financials (+2.0%), consumer discretionary (+2.8%) and telecommunications (+2.1%) lagged the market. On a lookthrough basis, the fund's significant overweight to consumer discretionary and information technology, coupled with an underweight to utilities and energy, were the main drivers for relative underperformance this quarter.

Coronation Global Emerging Market Fund had an excellent quarter as emerging markets rebounded from the falls recorded in the prior quarter. Anhanguera Educacional (+31.4%), Brilliance China Automotive (+22.6%), Netease (+16.4%) and X5 Retail Group (+37.8%) are examples of the strong returns amongst their top holdings and, indeed, throughout the portfolio. Polar Capital Japan also delivered a good return, generating alpha of 1.8% over the Topix Index, while Morant Wright Japan also outperformed the benchmark return.

Unfortunately, these funds were the only significantly positive contributors to our fund's performance, with most of the other funds delivering negative alpha for the quarter.

Cantillon Global Equity returned 1.9% with disappointing performance over the quarter from their larger positions such as Aalberts Industries (-5.8%), Babcock International (-2.2%), Intertek (-10.5%) and SGS (-2.5%).

Egerton Capital had a poor start to the quarter and didn't recover despite a better second half. Positions in Airbus (-5.7%), Ryanair (-10.0%) and Cognizant Technology Solutions (-3.3%) negatively affected performance despite strong gains from other stocks such as AIG (+9.1%) and American Airlines (+17.4%). Despite a surge in its top holding, Apple (+21.2%), Contrarius also underperformed due to declines in other major positions such as The New York Times (-11.2%), Twitter (-12.2%) and Ocado (-19.4%).

Although the US 10-year Treasury yield has fallen to 2.5% since the beginning of the year on the back of sharply contracting US growth in the first quarter of 2014, we suspect that many other indicators that point towards underlying strength in the US economy could lead to renewed upward pressure on bond yields and refocused attention on the Federal Reserve's exit strategy. As long as this move is not too large, or rapid, we believe that equity valuations have sufficient capacity to withstand rising interest rates. The global economic situation has been mixed so far this year, but we expect volatility to remain low. While on a standalone basis the US market is fairly valued, it also still looks attractive compared to bonds. Overall the environment is fairly benign with a bias towards economic acceleration. That said, we remain in unchartered territory for modern developed economies emerging from a financial crisis with interest rates well below any reasonable estimate of long-term equilibrium levels. It is hard to predict with confidence what market reactions will be to rising interest rates.

Portfolio manager
Tony Gibson

The fund returned 7.0% for the quarter, against 8.1% from the benchmark MSCI World Index (dividends reinvested). For a rolling 12-month period, the fund's return of 27.2% is in line with the benchmark return of 27.4%.

Equity markets had a strong finish to the year despite a few events that would normally unsettle investors. The US markets were particularly strong notwithstanding a government shutdown in October, rising bond yields and the beginning of the much anticipated tapering of the Federal Reserve's (Fed) quantitative easing programme. These headwinds were tempered by a domestic economy that continues its steady recovery, falling unemployment and increased housing activity - all of which bode well for the next 12 months. Elsewhere, Japan's markets rose 57% for the year reflecting its efforts to galvanise its economy through monetary and fiscal policy, while economic indicators for Europe are finally turning positive. The Fed tapering did have some impact and emerging markets were more subdued than developed markets, rising only 1.9% for the quarter. This has led to a negative return of 2.3% for the calendar year (in US dollar terms).

North America was the best performing region, rising 9.9% (in US dollar terms), while Asia ex-Japan performed the worst, rising only 0.3% (in US dollar terms). Europe rose 7.9% and Japan increased by 2.3% (both in US dollar terms). The fund's regional positioning had a negative impact on performance during the quarter.

Amongst the global sectors, information technology (+11.5%), industrials (+8.9%) and telecommunications (+8.8%) performed the best. Utilities (+1.3%) and materials (+4.2%) lagged the overall market.

The underlying funds also contributed to the relative underperformance for the quarter. Cantillon Global Equity and Sands Global Growth have both underperformed for the year and the quarter. Coronation Global Emerging Markets significantly outperformed its benchmark, the MSCI GEM Index, but it too detracted from performance as it underperformed the developed market index. Vulcan Value Partners had a good quarter and clawed back some of the underperformance with strong performances from Apple (+17.7%), Oracle (+15%) and Starwood Hotels (+20%). Although a small, but growing position, Contrarius Global Equity also had an excellent quarter primarily as a result of its exposure to Japan but also thanks to good returns from top holdings such as The New York Times (+26%), Yahoo (+22%) and Twitter, which has doubled since its recent IPO.

Outlook

The overriding theme for 2014 will, in all likelihood, be the tapering of quantitative easing in the US. Inevitably, this will result in volatility and we should expect the markets to be bumpier than during 2013. However, a number of secular themes will remain in place, the key one being the rotation out of bonds into equities, which we believe will be supportive of equity prices in the medium term.