Market review
The third quarter of 2009 provided evidence that the global economy is on the mend. A sharp fall in the rate of job shedding, stabilising house prices, a turnaround in consumer confidence and expanding industrial production in developed economies, marked what is likely to be the end of a deep and protracted global recession. Lawmakers seem confident that the massive reflationary policies introduced over the last 18 months are working their way through the system. However, the outlook remains uncertain and room for a withdrawal of stimulus may still be some time away. Investors face two possible outcomes. The first is a strong economic upturn off a low base, driven primarily by the replenishment of global inventories. Alternatively, the recovery could be disappointing and may not provide the earnings to warrant the strong re-rating across global equity markets. Over the quarter, global equity markets continued to head higher, with a 17.6% rise between July and September over and above the 21% gain in the second quarter of 2009. Cyclical stocks led markets higher, reflecting an improving economic outlook. Financials (25.9%), materials (21.5%) and industrials (19.8%) all ended strongly, while utilities (11.3%), healthcare (12.3%) and energy (12.9%) lagged the overall market. Emerging markets extended their gains over developed markets, closing the quarter 21% higher and ahead of the global composite for the third consecutive quarter. The return on the Citigroup World Government Bond Index was 6.2%. (All returns are in US dollars). Risk appetite has greatly improved over the last few months. The rand continued to benefit from massive foreign portfolio flows into the local bourse, more than offsetting the outflows seen in the second half of 2008. The local currency appreciated by nearly 3% over the third quarter, pushing the year's gains to 22% against the US dollar.

Portfolio review
The Investec Global Balanced Feeder Fund outperformed its benchmark over the quarter in rand terms. Asset allocation, including currency positions and external funds, added to performance.

Portfolio positioning
While most fear that the recovery in the global economy will disappoint, our principle concern is that the recovery will be V-shaped, as it was after previous significant recessions. This would threaten a sharp rise in bond yields, an early tightening of monetary policy by central banks and damage to equity market ratings and corporate bond prices. Our expectation remains that debt aversion, rising household savings and fiscal retrenchment in the developed economies should result in modest growth. However, we are on the lookout for signs of a stronger outcome. The valuation of the global equity market stands at 15.9 times 2009 earnings (as of 5 October, according to Société Générale Research), in line with our fair value estimate of 16 times. Consensus forecasts for corporate earnings now predict nearly 30% growth in 2010 (after a 10.4% fall in 2009). Sixty percent of estimate changes are now upgrades. Global equities are now trading at 13.7 times 2010 earnings, which we think, represents good value. That does not rule out a short-term consolidation before the uptrend resumes next year, but we doubt that any setback will be tradable. Corporate bond spreads have narrowed significantly. We believe that they still look attractive relative to government bonds. However, quality bonds are vulnerable to a rise in government yields and huge investor inflows are a warning sign. We have reduced our hedges against the dollar, believing a sharp rally to be possible. We remain confident about the fund's performance over the next year and in the long term.

Market review
Economies and asset markets across the globe had a good second quarter. The rate of contraction in economic activity slowed sharply and risk assets such as equities, corporate credit and commodities generated high positive returns. Policy makers seemed increasingly comfortable that measures introduced at the height of the financial crisis were gaining traction and forward-looking data indicated that the global economy may have reached an important turning point in the current quarter. While conflicting signs of 'green shoots' prevail, markets and economists seem unconvinced that a 'normal' recovery will ensue from here on. The improved growth outlook was also reflected in sharply higher equity prices. The MSCI Word Index gained 21% over the second quarter. Markets were led higher by cyclical sectors: financials gained 38%, materials ended 27% higher and industrials rose 24%. Defensive sectors, which had outperformed the market as economies collapsed, lagged the upturn, but still recorded absolute gains over the quarter. Healthcare rose 9%, telcos increased by 10% and utilities ended the quarter 13% higher. The S&P 500 Index gained 15.9%, lagging both the German Dax 30 Index (24.4%) and UK FTSE 100 Index, which gained 26% over the quarter (all in US dollars). Yields on 10-year government bonds rose, ending the quarter at 3.52% in the US, 3.38% in Germany, 3.69% in the UK and 1.35% in Japan. Spreads on corporate bonds narrowed, initially in investment grade non-financial issues, then in financials and high yield bonds as well. The return on the Citigroup World Government Bond Index was 3.5% in dollars during the quarter.

Portfolio review
The Investec Global Balanced Feeder Fund's returns were negative in rand terms over the quarter, due to the rand's strong appreciation against the dollar. The fund outperformed its benchmark in rand terms over the quarter. It was also well ahead of benchmark for the six months to the end of June. Broad asset allocation, including currency positions and external funds contributed to performance.

Portfolio positioning
We continue to expect a bounce back in the global economy, though this could fizzle out next year owing to debt aversion, rising household savings and fiscal cutbacks in the developed economies. There is already evidence of a recovery in Asia and emerging markets, as shown by the rise in commodity prices. We expect the developed economies to follow. Government bonds briefly touched a yield of 4% in the UK and US but are now back to expensive levels. Corporate spreads have narrowed, but remain 1.5 times their peak in the 2001/2002 cycle. The valuation of the global equity market has risen to 15.6 times 2009 earnings, close to our fair value estimate of 16. However, consensus forecasts for corporate earnings predict 27.5% growth in 2010, after a 14.4% fall in 2009. There are now more upgrades to estimates than downgrades, which mean that as 2010 approaches, the market will look increasingly good value. This does depend on the absence of a renewed trend of earnings downgrades, but the scale of recent corporate cost-cutting, especially in the US, suggests significantly faster earnings growth than current forecasts. Although the current market consolidation may continue for a while, we believe that we are possibly in the early stages of a long bull market in risk assets. There are, however, significant concerns about the economic outlook, the state of government finances, the durability of the recent return to financial stability and the skittishness of investor sentiment, but bull markets can climb a wall of worry. The portfolio remains positioned to benefit through an overweight position in equities and a preference for corporate bonds over government issues.

Market and portfolio review
The first quarter of 2009 was marked by continued economic weakness and financial market volatility. The severe global economic recession was reflected in a drastic contraction in final demand and international trade and sharp declines in capital investment. Industrial production was substantially weaker than in any other recession post the 1930s Great Depression; company earnings plunged and asset prices continued to drop.

The quarter was also marked by further announcements of fiscal and monetary packages intended to stabilise the global banking sector and support an eventual recovery in economic activity. The latest round of policies in the form of company bailouts and public-private investment programmes brought along some hope of stabilisation, but provided little evidence of successful implementation.

The US Federal Reserve, maintaining near zero interest rates over the quarter, set the tone for most developed market central banks when it noted that economic conditions warranted exceptionally low rates for an extended period. Government debt across the globe retreated from its December highs, stoked by concerns over reflationary policies. However, announcements by UK and US central banks that they would actively intervene in their sovereign debt markets to reduce the borrowing costs to households and firms caused yields to fall towards the end of the quarter. The return on the Citigroup World Government Bond Index over the quarter was -4.8% in US dollars.

An improvement in some economic indicators and a better earnings picture for three major US banks saw risk appetite returning to global markets and equities retracing from heavily oversold levels. The MSCI World Index rose by 7.6% in March, but gave up 11.8% over the quarter. The S&P 500 Index gained 8.8% in March, but still closed 11% weaker for the quarter. The Dow Jones Industrial 30 Index lost 12.5% over the quarter, but gained 7.9% in March. The German Dax 30 Index lost 18.9%, the French Cac 40 Index ended 16.6% weaker and the Japanese Nikkei 225 Index dropped 16% over the quarter (all in US dollars). All markets generated strong positive returns in March.

Emerging markets did not retest their fourth quarter lows and continued their outperformance over developed markets. In US dollars, the MSCI Emerging Markets Index gained 1% over the quarter. Brazil (10.4%) and Russia (5.9%) performed strongly, while Turkey (-12.7%) and Korea (-4.3%) lagged the peer group over the first three months of the year. The MSCI South Africa Index gave up some of its recent outperformance to end the quarter 4% weaker (in US dollars).

The Investec Global Balanced Feeder Fund outperformed its benchmark in rand terms over the first quarter of 2009. Asset allocation, currency and external positions contributed to returns.

Portfolio positioning
We remain sceptical of actions by governments and central banks, but nevertheless believe that the steepness of the economic decline will shortly lead to a bounce back. However, this could fizzle out later this year or next. The commodity markets already point to some recovery in global demand. While this means that government bonds are still very expensive, it is positive for corporate bonds. An economic recovery should also support the dollar, which is reflected in the portfolio's currency positions.

Corporate earnings' forecasts have continued to fall sharply. We expect some stabilisation over the next few months, then an improvement in the outlook, with strong growth in 2010. Equities have been discounting a far worse earnings outlook than is likely. Most funds have been positioned for further market weakness and the rally has been greeted with scepticism and disbelief. This reinforces our view that equity markets will rally further and corporate bond spreads will narrow, but we cannot yet say whether or not this is the start of a new bull market. The portfolio is positioned to benefit from strength in risk assets, both through a modestly overweight position in equities and a significant preference for corporate bonds over government issues. We remain confident about the portfolio's performance in 2009 and 2010.

Market review
The final quarter of 2008 brought no relief to investors, consumers or policy makers as the financial crises and concurrent economic slowdown continued to unfold. Activity data across the globe reached multi-decade lows, marking the worst global recession post World War Two. The quarter was characterised by accelerating job losses, falling house prices and tighter bank lending standards.

Large-scale bank failures were averted in the last three months of the year after a torrid third quarter, but the financial sector remains under severe pressure. Government and central banks across the world have introduced a range of policy measures in an effort to avoid a prolonged and costly global recession. The US Federal Reserve slashed its key interest rate to all time lows as the inflation concern is all but erased from central bankers' minds. The UK and European central banks are likely to follow suit early in 2009. While macro fundamentals deteriorated sharply, yields on US government debt plummeted to new depths, indicative of the ominous economic outlook.

As investors fled risky assets and repatriated foreign funds, the US dollar regained its composure against most of the world's currencies, the only notable exception being the Japanese yen. While gold remained flat over the last quarter, it managed to add 5.5% over the year in the face of a rampant US currency. The rest of the commodity basket, however, saw further weakness as the world economy slid deeper into recession. Diminishing Chinese demand failed to provide any resistance against the severe global headwinds. Large supply cuts instituted by OPEC members provided no benefit to oil producers as Brent crude fell a massive 61.8% in the fourth quarter.

Global equities experienced one of their worst periods in history, erasing impressive gains over the last few years. Sector leadership in the fourth quarter mirrored that of the previous quarter, with global materials, financials and consumer discretionary sectors again constituting the worst performers while telcos, utilities and consumer staples escaped some of the market weakness. The MSCI World Index fell 21.7% over the quarter in US dollars and was down 40.3% in 2008. In US dollar terms the S&P 500 Index returned -21.9% (2008: -37%), the FTSE 100 Index -26.3% ( 2008: -48.2%) and the MSCI Europe Index dropped 22.7% (2008: -46.1%).

Portfolio review
The Investec Global Balanced Feeder Fund underperformed its benchmark in rand terms over the fourth quarter. Asset allocation and currencies were broadly neutral. However, increasing discounts on closed-end funds, particularly those in private equity and hedge funds, detracted from performance. The portfolio had an overweight position in equities and an underweight position in bonds at the end of the quarter.

Portfolio positioning
While forecasts of economic growth continue to be lowered, the consensus view of a US-led recovery starting around mid year is highly plausible. This should be followed by a return to reasonable growth in 2010. Earnings forecasts have further to fall in the short term, but we expect to see some improvement in the second half of the year and strong growth in 2010. Risk assets, including equities, corporate bonds and commodities, have been discounting a far worse economic and earnings outlook than is likely. Hence, the recovery seen since late November and into January appears to be justified. We expect equity markets to rally further and corporate bond spreads to narrow, though that should lead to a period of consolidation.

The action by governments and central banks to use all the monetary and fiscal tools at their disposal to reduce the economic downturn poses serious long-term risks. Interest rates are also very low at both the short and long end of the market. Taking these factors into consideration, we believe that government bonds are very expensive. Currencies such as sterling and the dollar are also at risk, as cash yields have become very low. Economic recovery should be positive for the dollar, but cash yields will need to become more attractive, if the dollar is to sustain any further advance.

For the time being, currency positions are neutral. We strongly favour risk assets, but express that view through increased exposure to corporate bonds rather than a significantly overweight position in equities. After a very difficult 2008, we are confident of much better conditions in 2009 and 2010.