The fund appreciated by 9.73% (in ZAR) over the quarter, taking its year-to-date return to +36.50%. Year to date the fund is up 14.42% in USD, with the balance of the return coming from ZAR depreciation. Over the past 5 years, the fund has generated a return of +15.83% p.a. in ZAR (+11.39% p.a. in USD) and in doing so has outperformed its benchmark (CPI + 5%) by 5.67% p.a. and the MSCI World by 2.93% p.a. Our views remain broadly unchanged: we believe that global equities remain the most attractive asset class and the fund's global equity exposure of approximately 75% reflects this view. South African assets still offer very little value in our view, and this is reflected in the fact that only 15% of the fund's assets are now in South Africa. We also continue to hold the view that government bonds worldwide are overvalued and as such have no exposure here. While global equities have appreciated over the past few years, we continue to find good value in a number of stocks from which one can expect to get a low double-digit return in USD over the next 5 years. Walmart, the fund's 5th largest position (3% of fund) is one such example. We have owned Walmart in the fund for a number of years but increased the position recently after a decline in its share price. Walmart are the largest retailer in the US and indeed the world. The company's market share in its home market (the US), where it is dominant, is almost 3x that of its closest competitor, Kroger. Although the US business (store network and Sam's Club, which is a membership business) dominates group earnings (78% of profits come from the US), its international business (with operations in the UK, Canada, Mexico, Brazil, South Africa and others) is substantial in its own right and on a stand-alone basis would be the 2nd largest retailer in the world (by sales it would be 1/3rd bigger than the likes of Tesco and Carrefour). In food retail, scale matters (buying power = positive GM impact = ability to reinvest into price = increased market share). Scale also means economies of scale and resultant higher margins. The graphs below show Walmart's operating expenses as a percentage (%) of sales vs its main US competitors (10-year averages) and in this regard Walmart's costs (as a % of sales) are well below that of all of its competitors. It's operating margins (and indeed return on capital) are in turn higher than most competitors. Scale is a big part of this, but so is the way Walmart operate (a high % of inventory being delivered through its distribution centres) as too is the cost-conscious culture of the company, installed from day 1 by the founder, Sam Walton. Culture plays an important role in many other ways, one of which is the fact that each store manager at Walmart is effectively an entrepreneur who operates their store as if they own it, and is measured and remunerated as such. In addition to the above, Walmart ? at the same time as growing the business ? have returned significant amounts of cash to shareholders. In the past 5 years, the company has paid $23 billion in dividends and bought back shares (at attractive prices) totalling almost $40 billion. While one could argue that they have made a few expensive acquisitions (the Massmart transaction being most recent and notable), the scale of acquisitions historically have been relatively small: over the last 10 years $7 billion has been spent on acquisitions compared with $91 billion that has been returned to shareholders over this same period. Walmart's earnings have also been very stable over time: the graphs below show EPS over the past 40 years and operating margins by division over a range of periods. In more recent years, earnings growth has slowed and with it the rating that the market is prepared to place on Walmart has come down. The US market is fiercely competitive and e-commerce is a potential long-term threat to the business. Despite the threats, Walmart remains a very high quality business in our view and is one that should be able to grow its earnings by 6%?7% p.a. which combined with a dividend yield of 3% gives one close to a 10% annual expected return even with no upward re-rating. In this regard, Walmart today trades on around 13.5x 1 year forward earnings: we feel that this is too low for a business of this quality. In summary, we believe that the fund's investment in Walmart will deliver a reasonably low risk 10% p.a. return in USD over the next 5 years and the attractive risk/return profile justifies an above-average position size.

The fund appreciated by 7.8% (in ZAR) during the quarter, taking its year to date return to +24.4%. Year to date the fund is up 5.9% in US dollar terms, with the balance of the return coming from rand depreciation. Over the past 10 years, the fund has generated a return of +14.3% p.a. in ZAR (+11.2% p.a. in USD) and in doing so has outperformed its benchmark (CPI + 5%) by 3.5% p.a. and the MSCI World Index by 3.4% p.a. Our views remain broadly unchanged: we believe that global equities remain the most attractive asset class and the fund's global equity exposure of approximately 75% reflects this view. South African assets still offer very little value in our view, and this is reflected in the fact that only 15% of the fund's assets are now in South Africa. We also continue to hold the view that government bonds worldwide are overvalued and as such have no exposure here. We continue to find very good selected value in global equities, and Dollar General (now the fund's second largest position at 3.7% of fund) is a good example in this regard. Dollar General is the largest discount retailer in the US by number of stores (10 500 outlets across the US). The company opened its first store in 1955 and listed in 1968. Since listing, the company has produced exceptional financial results: revenues have compounded at 14% p.a. and earnings at 15% p.a. over this 45-year period. Importantly, in our view the long-term prospects for the company continue to be excellent: Dollar General's market share of the US food retail/consumables market is only 1.4% today and the company believes a footprint of 20 000 stores (double the current store base) is ultimately achievable and in our view this is feasible. Dollar General has a simple (and very effective) strategy: to beat competitors on price and convenience (small stores located close to the customer). Whilst Dollar General's prices are similar to those of Walmart, their prices are 10% - 20% more competitive than all of the big US supermarket chains (Kroger, Safeway, Supervalu, etc.). The strategy of lower prices and better convenience has resulted in significant market share gains at the expense of the supermarkets and the independents, as can be seen from the table below which shows market shares over the past 10 years. The two winners over this period have been Walmart (also a top 10 holding in the fund) and the Dollar stores (discount stores) of which Dollar General is the largest. In our view, Dollar General will continue to take market share, driven by the same strategy of low prices and convenience as well as continued store roll-out. The supermarket operators have very low operating margins (average margin of 2.7% for the five largest US supermarket chains), which gives them little room to decrease prices substantially in order to compete with Dollar General. Of course they can cut costs (which is what they have been doing), but this risks hurting the customer value proposition and the loss of market share by the supermarkets confirms that this is exactly what has been happening. The graphs below show the number of employees per store for three of the large US supermarket chains over the past five years as well as capital expenditure for these three chains. It is clear that these businesses have been underinvesting and this has in turn negatively impacted the customer experience. Dollar General management's incentivisation is aligned with shareholders in our view, and management have executed flawlessly both operationally and from a capital allocation point of view. In addition to this, the business has earnings that are very resilient, generates a lot of cash and generates high returns on capital (ROE of 20%). Today the share trades on around 15x one year forward earnings which we believe is extremely attractive for a business of this quality, and justifies the large position size.
Portfolio manager team
Gavin Joubert, Neville Chester, Karl Leinberger, Louis Stassen and Mark le Roux Client

The fund had a good start to the year, appreciating by 15.4% in ZAR (made up of a 5% return in USD with the balance coming from ZAR depreciation). Over the past 10 years, the fund has generated a return of +14.5% p.a. in ZAR (+12.7% p.a. in USD) and in doing so has outperformed its benchmark (CPI + 5%) by 3.7% p.a. and the MSCI World Index by 3.2% p.a. Our views remain broadly unchanged: we believe that global equities continue to be the most attractive asset class and the fund's 75% global equity exposure reflects this view. South African assets offer very little value in our view, and this is reflected in the fact that only 15% of the fund's assets are now in South Africa. We also continue to hold the view that worldwide government bonds are overvalued and as such have no exposure. We are still managing to find good value across the globe, including Europe, and in fact a few of the fund's more recent purchases are European shares, Adidas being one of them. Despite being headquartered and listed in Germany, Adidas is in reality a diversified global business and one of only two (Nike being the other) truly global sporting brands. The Adidas brand and their signature three stripes are recognisable anywhere in the world, particularly in football mad countries given the company's sponsorship of most major football tournaments. This brand power gives Adidas a substantial competitive advantage over all other competitors (with the single exception of Nike), both in terms of pricing power and scale benefits. Adidas spends approximately $2.3 billion a year on marketing (Nike spends $3 billion) and the third largest company in the industry (Asics) by our estimates has marketing spend that is 1/10th of this level. This gulf in spending entrenches the gap between Nike, Adidas and the rest of the industry. Almost half (47%) of Adidas's revenue comes from its footwear division, 41% from apparel and the remaining 12% from sporting goods hardware (mainly golf equipment). The footwear market in particular is very attractive as it is an effective oligopoly (see graphs adjacent), with Nike and Adidas having a combined market share of 53%. The third largest company, Asics, only has 5% of the market. The apparel market is less concentrated, but the share of Nike and Adidas (each around 10%) is double that of the next largest company (VF Corp). Over the past 10 years, Adidas has grown EPS (earnings per share) by 10.9% p.a. and DPS (dividends per share) by 16.7% p.a. In addition, the company has converted 100% of its earnings into free cash flow. In our view, the prospects for Adidas over the next 10 years are very attractive and we believe the company can match or exceed this historic financial performance. Besides mid to high single-digit revenue growth, we believe that operating margins (at 7.9%) are well below what we would consider to be a normal level. In our view, over the next few years margins will increase to over 10% (Nike currently generates 13% operating margins), driven by several factors including increasing (higher margin) revenue from emerging markets (currently 41% of overall revenue), improved scale and performance in the key US market, a higher mix of retail/franchise stores, slightly better performance from Reebok (which Adidas acquired in 2006), scale and operational leverage. At purchase the share was trading on 16x 2013 earnings, which we think is very attractive for this high quality asset with earnings that are below normal.

Portfolio manager team
Gavin Joubert, Neville Chester, Karl Leinberger, Louis Stassen and Mark le Roux

Please note that under a new fund classification system for the unit trust industry, effective 1 January 2013, the fund category name has been changed to Worldwide - Multi Asset - Flexible (previously Worldwide - Asset Allocation - Flexible

The fund had a good year, appreciating by 22.5% in ZAR and in doing so outperformed its benchmark of CPI+5% by 11.9%. In USD, the fund's return was +17.7% for the year. As a reference point, the MSCI World Index generated a return of 16.5% in 2012. Over the past 10 years the fund has generated a return of 11.9% p.a. in ZAR and 12.2% p.a. in USD. The fund has historically had very little exposure to Japan. While the long-term fundamentals for the country are poor (ageing population, high debt levels and deflation), the single biggest reason for our low Japanese exposure has been the fact that management teams in Japan, in our opinion, are typically not interested in doing what is best for their shareholders. We believe the probability of ever seeing the cash that sits on the balance sheet of corporate Japan is very low, and the below average Price/Book valuations of most Japanese companies are largely justified by this fact, taken together with the reality that ROEs in Japan are at abysmally low levels and are amongst the lowest in the world. Two of our global analysts went on a research trip to Japan in September and met with 30 Japanese companies. The trip largely confirmed our previously held negative views on Japan, but we ended up including four stocks that we found attractive in the fund, three of which (Sundrug, Sugi and Tsuruha) are in the drug store industry. These stores sell pharmaceutical drugs and a range of consumer products, not unlike a Clicks store in South Africa. The table below shows several key metrics for the three companies as well as those for the Nikkei (the Japanese market). The drug stores look very different from your average Japanese company in a number of respects: against the backdrop of deflation they have managed to produce double-digit topline growth over the past 5 years (12% average sales growth for the three companies as opposed to -1% for the average Japanese company) and they have expanded their margins and have grown earnings at a double digit rate (15% p.a. on average for the three companies compared with -6% p.a. earnings growth from the average Japanese company). Over longer time periods the picture is the same: Sundrug has the longest listed history of the three and over the past 15-year period it has grown its earnings by a factor of 9.5x compared to the average Japanese company which has grown earnings by a factor of 1.4x. In terms of returns, the three drug stores generate ROEs in the 13% - 15% range, well above the 8% generated by the average Japanese company. All three drug stores have very strong balance sheets, with net cash positions ranging from 10% of market cap to almost 30% of market cap. Lastly the valuations are very attractive: low double-digit P/Es on the next 1 year of earnings (or high single digit P/Es if one strips out the net cash, which isn't contributing to earnings). In addition to this, founder families still own around 40% of the equity in these three businesses but have all made the transition to being professionally managed operations. We believe the prospects for the Japanese drug store industry are very favourable: Japan has amongst the fastest ageing populations in the world and the number of individuals over 65 years of age increases in absolute terms every year. This in turn will result in an increase in per person spend on pharmaceuticals. Another key driver is the fact that the market is still very fragmented, with many 'mom and pop' stores and the largest drug store operator only having a market share of 5%. With large cash positions and ongoing strong cash generation, the three drug stores in which the fund is invested are well positioned to take market share both organically and through consolidation. In summary, we believe the Japanese drug stores today represent a very attractive investment opportunity and 4% of the fund in total is now invested in Sundrug, Sugi and Tsuruha. Our views on the various asset classes are broadly unchanged. We believe global equities are by far the most attractive asset class and the bulk of the fund's assets (76%) are invested here. The South African equity exposure remains low (11% of fund) as we believe that most South African equities are fully valued or indeed overvalued. We also continue to hold the view that global government bonds are significantly overvalued and the fund has no exposure.

Portfolio manager team
Gavin Joubert, Neville Chester, Karl Leinberger, Louis Stassen and Mark le Roux