Philosophy
This is a high equity fund suitable for pre-retirement savers. The objective of the fund is to earn the best risk adjusted returns by acquiring mispriced securities, while limiting the exposure to any particular macroeconomic or political risk. Asset allocation and stock selection is done on a bottom-up basis. We have resolved not to manage the asset allocation or the stock selection on a top-down basis. We think that by managing the assets in the fund this way, investors are most likely to meet their long-term investment objectives. The fund was launched on 2 May 2017.

Performance
Asset markets delivered good returns during the quarter. Both domestic and international equity delivered strong performance - the FTSE/JSE All Share gained 8.8% and the MSCI World Index closed 9.1% higher. As a result of rand weakness lower risk offshore assets also delivered reasonably good rand returns ....the JP Morgan Global Bond Index and JP Morgan Cash Index gained 5.6% and 6.7%, respectively. South African government bonds and domestic cash were the laggards gaining 3.6% and 1.8%, respectively.

Noteworthy Allocations
The fund has no exposure to long dated developed market government debt. Interest rates are simply too low to justify investments in these assets - they offer very low returns with the potential for substantial losses. The asymmetry in outcomes is extremely unattractive to us. As a result, we have chosen to roll shorter dated cash investments instead. Although shorter dated instruments offer lower interest returns the risk of sustaining capital losses is substantially reduced. In South Africa we similarly prefer shorter dated loans to corporates (money market instruments) over long-term loans to government. There is just too much uncertainty about the economy, the fiscus and inflation targeting to risk capital losses. The price of insurance against market losses in the developed markets remains at historic lows. As a result, we have hedged out downside risk on the offshore equity investments. News flow The SA Reserve Bank surprised the market twice this quarter. By cutting interest rates by 25bp in July and then by failing to cut again in September. The repo rate therefore remains at 6.75%. The money markets do not expect the SA Reserve Bank to make any changes to this rate for the foreseeable future. StatsSA reported that the SA economy grew by 2.5% in the second quarter of the year, ahead of economist expectations of 2.1%. Although the economy has escaped the recession, company results released during the quarter indicate that the economy continues to experience subdued demand. Tax revenue numbers released by National Treasury suggests slower growth than budgeted in February. Treasury has indicated that downward revisions to growth projections threaten the affordability of planned expenditures. Outlook Globally asset markets offer little reward for bearing risk. Given the restrictions on foreign assets embedded in Regulation 28, investors remain exposed to South African political risk. Where possible, we have positioned assets to limit capital losses from potentially adverse political events. A significant component of this risk mitigation strategy is to maintain the offshore assets at 25% of total fund value. As such, any rand strength could drag on portfolio performance.

The objective of the portfolio is to provide attractive risk adjusted returns to the investors, by investing across a wide range of assets, both locally and internationally. The portfolio will avoid unnecessary, or diversifiable, macro-economic risk and aims to earn the available risk premiums expected from the various asset classes over the long-term.