The Dividend Growth Fund is currently yielding approximately 3% and has grown its distribution by approximately 8% more than inflation over the last decade. This makes the fund an ideal equity building block for retirement planning.

The third quarter of 2013 proved to be a relatively good period for the share price performance of more cyclical companies when compared to the share price performance of companies in typically defensive industries. This divergence in performance, however, is not supported by economic data. It is interesting to note that despite historically low interest rates, consumer confidence has fallen to its lowest level since 2003. This does not bode well for the country's economic growth prospects as South Africa is largely dependent on household consumption for GDP growth.

In a subdued economic environment it is difficult to justify the current low dividend yields of local equities. As a result of below average yields, the impact of dividend growth on investment value growth will be even more important as capital accumulation through re-investing income will be low from a historical perspective. Hence, Marriott has elected to only invest in companies with the ability to grow their dividends regardless of economic circumstances. Given the prevailing economic conditions we are of the view that this is the most sensible strategy to ensure an acceptable long term outcome from an investment in domestic equities.

As a result of income growth from the portfolio's underlying securities the Dividend Growth Fund's distribution increased by 4% for the quarter. We continue to expect inflation beating reliable distribution growth in the years ahead.

The second quarter of 2013 has proved to be a volatile period for local equity investors with the All Share Index ending approximately 1% down for the period. This volatility reflected uncertainty in the market stemming from the potential implications of a slowdown in quantitative easing by the US Federal Reserve Bank on equity valuations in emerging markets. In a subdued economic environment it is difficult to justify the current low dividend yields of local equities. As a result of below average yields, the impact of dividend growth on investment value growth will be even more important as capital accumulation through re-investing income will be low from a historical perspective. Hence, Marriott has elected to only invest in companies with the ability to grow their dividends regardless of economic circumstances. These companies tend to focus on basic necessities, enjoy country wide distribution and have strong balance sheets. They typically fare well in both recessionary and growth phases of the economic cycle and are seldom at the mercy of a new idea, trend or fashion. Their products are generally everyday household items, with market dominance a function of their brands.

As a result of income growth from the portfolio's underlying securities the Dividend Growth Fund's distribution increased by 1.2% for the quarter.

The type of companies an investor chooses to use in the construction of an investment portfolio requires careful consideration. Marriott is of the view that choosing companies with predictable profitability are likely to serve investors best. Not only do these companies pay out reliable dividends which can be used to fund a lifestyle or reinvest, history has shown that they also tend to outperform over the long term. Consequently, it is possible for investors to reduce the overall risk of an investment portfolio without sacrificing performance through their choice of companies.

The dividend growth prospect of the majority of South African listed companies is a function of the financial health of the consumer as approximately 60% of the South African economy is driven by household consumption. Despite a tough economic environment, the local consumer has been supported by a combination of: 1) historically low interest rates; 2) a significant uptake of unsecured credit; and, 3) wage increases well ahead of inflation. These supporting factors are, however, unlikely to be sustainable over the longer term. Considering this, the fund is invested in companies that will always attract a portion of consumer's income. These companies tend to focus on basic necessities, enjoy country wide distribution and have strong balance sheets. By the nature of their business, they will be largely unaffected by political decisions and macro-economic events. They tend to fare well in both recessionary and growth phases of the economic cycle and are seldom at the mercy of a new idea, trend or fashion. Their products are generally everyday household items, with market dominance a function of their brands. The yield of the fund is currently 3% after fees which is an acceptable price to pay for an income stream when one consider the quality and defensive characteristics of the underlying portfolio.

The type of companies an investor chooses to use in the construction of an investment portfolio requires careful consideration. Marriott is of the view that choosing companies with predictable profitability are likely to serve investors best. Not only do these companies pay out reliable dividends which can be used to fund a lifestyle or reinvest, history has shown that they also tend to outperform over the long term. Consequently, it is possible for investors to reduce the overall risk of an investment portfolio without sacrificing performance through their choice of companies.

2012 was another very successful year for investors in the Dividend Growth Fund. Over this period the fund produced a total return of 28.8% and increased its annual distribution by 29.1%. It's longer term performance is also impressive - as of the 31 December 2012 the fund is the 2nd best performing general equity fund over 5 years. The good performance of the Dividend Growth Fund can be attributed to Marriott's exclusive focus on producing reliable income for investors as opposed to a deliberate attempt to outperform our competitors. When it comes to equity investing, dividend growth is generally the greatest contributor to increasing investment value over the longer term. Equities are typically low yielding investments, but the growth in that yield generally exceeds inflation. For the past five years, the global economic slowdown has meant that South African companies have struggled to consistently increase profits and dividend payments to shareholders. During this period the fund's investment universe has been restricted to those companies with the ability to produce reliable dividend growth regardless of the economic circumstances. Consequently, the fund was able to grow its distributions to investors at an average rate of 10.4% p.a., approximately 4% above inflation. It was this growth in income, as well the reinvestment of the fund's distributions, which resulted in an 15.7% p.a. increase in investment value over the period - almost double the return of the average general equity fund.

For investors preparing for retirement, the fund's ability to produce a relatively high level of dividend income and reliable income growth makes it ideal for inclusion in a retirement annuity. Over time, the fund's income growth as well as the compounding effect of reinvesting income will generate a high level of income for retirement and a more predictable end result.

For retired investors the fund is also well suited for inclusion in living annuities, as its higher yield and reliable income will assist investors avoid capital erosion (the redemption of income producing investments) and will produce income growth in excess of inflation.