Market review
Equity markets bounced from oversold conditions in July, weakened in August on macroeconomic concerns and rallied again in September. The MSCI World Index returned 13.9% in US dollars over the quarter, while the MSCI Emerging Markets Index gained 18.2%. The US dollar weakened sharply during the review period, depreciating against sterling, the euro, the yen and the rand. Yield spreads within Europe relative to Germany continued to rise, especially in Ireland and Portugal. Spreads on corporate bonds were little changed but declined on high yield, resulting in firmly positive returns. The return on the Citigroup World Government Bond Index was 8.2% in US dollars.

Portfolio review
Our view is that developed markets face subdued and sustainable growth, rather than a double-dip recession. Divergence within the euro zone continues. We believe that the postponement of any euro crisis, due to support from the European Central Bank, may end up doing more damage than good. The recent rally in the euro may create further problems, but intervention by the Bank of Japan to cap the yen suggests that the authorities are afraid of their economic recovery being halted by currency strength. Talk of further quantitative easing in the US has led to renewed US dollar weakness to the benefit of risk assets. We think this new round of quantitative easing is likely to be ineffective or may have undesirable consequences. Overall, economic conditions are favourable for risk assets.

The Investec Global Balanced Feeder Fund underperformed its benchmark in rand terms over the quarter. Global equities and bonds added to performance, while asset allocation, including currency positions and non-core funds, was neutral overall

Portfolio positioning
Despite recent strength, we believe that equities still represent good value and are likely to be supported by another strong set of quarterly results. The economic data is mixed, as it usually is early in the cycle, and the pessimistic bias of many commentators and bond market investors means that the most negative spin on each piece of data is trumpeted. Overall, we believe that the global economic outlook is for satisfactory, sustainable growth. However, we think there is no light at the end of the tunnel for parts of the euro zone, and policy errors are a serious risk. Global equity markets are very good value on a 2010 price earnings ratio, based on consensus forecasts, of 13.6 for 2010 and 11.6 for 2011, both of which are increasingly visible. Equities are likely to find support from continuing earnings growth and, at some point, a rerating.

Government bond yields have remained low, confounding those who describe them as being in a bubble that is about to burst. With economic growth modest, inflation likely to remain low and many investors risk averse, it seems to us that a slow puncture is more likely. High grade corporate bonds also seem expensive to us, but we believe there is still value in medium grade and especially in high yield. Emerging market debt has now been discovered as an asset class by investors, but the outlook continues to be favourable. We believe the euro and yen are overvalued, but it would be a mistake to be too bearish. It is unlikely that euro weakness will solve the problems in the euro zone. The yen is not far from competitive levels and the US dollar is discounting quantitative easing that may be postponed. Our move to overweight equities at the start of September has added to returns, and we are confident with the positioning of the portfolio through to the end of the year.

Stable markets at the start of the quarter soon gave way to a period of significant weakness with all attempts to rally soon fizzling out as the euro-zone crisis continued to worsen. The MSCI World Index returned -12.5% in dollars over the review period. The US dollar strengthened against sterling and the euro but weakened against the yen. Ten-year government bond yields declined to 2.96% in the US to 2.58% in Germany to 3.35% in the UK and 1.09% in Japan. Yield spreads within Europe relative to Germany spiked upwards early in May, fell back but then moved inexorably higher during the rest of the quarter. Spreads on corporate bonds and especially on high yield rose as risk aversion increased.

US economic data and global leading indicators point to a fading in the rate of global economic recovery, but not to a 'double-dip' in activity. More significantly, all attempts to restore confidence in the euro-zone have failed. Rising yield spreads within Europe threaten governments' ability to finance deficits, making it difficult for banks to roll over lending and encouraging capital flight. A break-up of the euro zone would severely undermine European banks' balance sheets, requiring major bailouts. Fiscal retrenchment, although welcome in the long term, may lead to stagnation in the countries concerned with most of the benefit of a weak euro accruing to those that need it least - notable Germany. We think this imposes a significant headwind for the global economy and markets, which is unlikely to lift until the system unravels.

Market review
In the first quarter of 2010 asset prices continued to rise as the global economic recovery gained traction. Strong March returns took the global equity market composite back into positive territory for the year. The MSCI World Index closed 3.4% higher over the first quarter while the MSCI Emerging Markets Index returned 2.5%. US markets led their global peers, with more cyclical markets and sectors generally showing stronger returns. On the emerging market front, South Africa along with Turkey, India and Russia all recorded dollar returns above 4% (MSCI indices). Chinese equities (-1.6%) continued to languish, despite domestic growth data pointing to robust investment spending and rising consumption growth. The global market weakness in response to Chinese policy tightening early in the quarter was short-lived, with risk appetite improving and optimism about the recovery again prevailing. All returns are quoted in US dollars. Over the review period the US dollar gained against all major currencies, rising by 6.5% against the sterling, 6% against the euro and 0.4% against the yen. Yields on ten-year government bonds also rose, ending the quarter at 3.8% in the US and 1.4% in Japan. Yields fell modestly to 4% in the UK, and more significantly in Germany ending the quarter at 3.09%. Spreads on corporate bonds continued to narrow, but only moderately, leaving limited further scope on high quality issues. The return of the Citigroup World Government Bond Index was -1.3% in US dollars.

Portfolio review
The Investec Global Balanced Feeder Fund outperformed its benchmark in rand terms over the quarter. Our holdings in global bonds and equities added to the quarter's returns. Asset allocation, including currency and external positions, also contributed to performance over the review period. For the 12 months to the end of March the portfolio was well ahead of its benchmark in rand terms.

Portfolio positioning
Investors spent much of the first quarter worrying about the macroeconomic uncertainties around the world and therefore avoiding risk. In our view, these concerns are justified but fully reflected in equity market valuations, though not in the valuation of government bonds. Curiously, investors appear more cautious about the former than the latter. We believe that there is little evidence, outside the distressed corners of the euro zone, of governments in developed markets taking the excessive fiscal deficits seriously. For this reason, we continue to avoid government bonds and are becoming more concerned about the ability of corporate bonds to compensate for rising government yields in falling spreads. Although historic equity valuations look full, strong earnings growth in 2010 are increasingly visible and earnings forecasts continue to be upgraded. Moreover, preliminary estimates show further strong growth in 2011, bringing valuations down to levels cheap enough to withstand significantly higher bond yields. Consequently, we continue to be overweight in equities. We are still positive about the US dollar, especially relative to the euro and the yen, and so remain overweight the greenback and underweight the euro and the yen. However, we believe that the US dollar may be running out of short-term momentum, so we do not expect much out of the current quarter. Overall, our strategy for 2010 is going according to plan and we are hopeful of another good year.

Market review
2009 marked the end of the recession and provided asset markets with ample opportunity to retrace some of the losses sustained in the wake of the worst global financial and economic crises in decades. Along with commodities and the corporate credit markets, emerging economies were the prime beneficiaries of improving global growth prospects, the strong recovery in risk appetite, the weak US dollar and low borrowing costs across the developed markets. Emerging market equities rose 8.6% over the last quarter and 79% in 2009, well ahead of developed markets. The MSCI World Index returned 4.2% over the quarter to push the year's gains to 30.8%. All returns are quoted in US dollars. In sync with other commodity currencies, the rand regained its composure in 2009. Record capital inflows and higher commodity prices fuelled a 28.7% gain against the US dollar. 2009 was not a good year for bond markets, reversing some of their gains of the previous year. Bond prices fell in 2009 as economies recovered and the cost of massive fiscal and monetary stimulus started to hit home. The return on the Citigroup World Government Bond Index was -1.9% in US dollars over the quarter.

Portfolio review
The Global Balanced Feeder Fund outperformed its benchmark in rand terms over the fourth quarter of 2009. Our holdings in global equities added to the quarter's returns. Asset allocation, including currency and external positions, also contributed to performance over the review period. For the 12 months to the end of December, the fund was well ahead of its benchmark in rand terms.

Portfolio positioning
Late 2009 brought a sharp rally in the US dollar, debt crises in Dubai and Greece and a rise in government bond yields. Unusually after such a strong year, investor sentiment became cautious and nervous, yet equity markets rose steadily to post-crisis highs. The upward pull from reasonable valuations and strongly improving earnings has overcome the uncertainties and worries, while a fall in yield spreads has enabled corporate bonds to defy the trend of government bonds. It is our opinion that this trend is likely to continue and that the downside risk to markets is expected to be very limited. The risks of an anaemic recovery, a refusal by governments in developed economies to address the huge fiscal deficits and destabilising monetary policy are well known and are discounted in the market. However, what we believe is not discounted is the possibility that governments will take action to restrain the deficits, enabling monetary policy to remain loose, reducing the rising risk in government bonds and sustaining a long and moderate economic recovery. Such a move by governments would benefit corporate earnings, equity market ratings and bond yields. This should significantly improve the outlook for investment assets in 2010 and beyond. We remain very cautious about investing in government bonds, but favour corporate bonds. As default rates decline and credit risk falls, we are positive about both high yield and local currency emerging market debt. We believe that the rally in the US dollar has further to go. However, we are sceptical that it is the start of a bull market rather than part of a trading pattern. We believe that the outlook for equities is at worst neutral and at best excellent, meriting an overweight exposure, as markets can be expected to instantly reflect any improvement in the long-term outlook. We anticipate good absolute and relative returns for risk assets in 2010.