Market review
Data generally surprised to the upside in the second quarter, especially in developed economies. This was sufficient to encourage a shift in rhetoric from the US Federal Reserve (Fed) towards a gradual removal in policy accommodation. This pushed bond yields generally higher and boosted the US dollar, especially against currencies of developing nations and major commodity producers, which were undermined by relatively weak data out of China.

Portfolio review
The portfolio had a reasonable quarter, helped by interest rate and currency positioning. However, our emerging market debt and corporate bond exposure detracted from returns.

Portfolio activity
During the review period, the portfolio reduced exposure further to emerging market debt and currencies, as well as to inflation-linked government bonds. The short duration position in Japan was reduced following a sharp rise in yields. In currency markets, the portfolio remained generally long US dollars against other currencies. Within corporate debt, the portfolio participated in a number of new deals such as Heinz (Warren Buffett's latest acquisition), Equiniti (a UK-based provider of share registrar and custodian services to large blue-chip corporations), Wepa (a German family-owned tissue manufacturer) and a shortdated HSBC deal. In secondary markets, exposure to more defensive sectors and names was increased. Profits were taken on cyclical names such as Anglo American (a diversified miner), Intercontinental Hotels (a global leisure organisation) and added to Verizon Wireless (US telecoms) and Medtronic (US healthcare). More thematically, exposure has been gradually reduced to both commodity and emerging market credit risk. The holding in New World Resources (Czech coal miner) was sold, and exposure to names such as Petrobras (Brazilian oils & gas), Reliance Industries (Indian chemical producer) and IPIC (Abu Dhabi-owned oil & gas vehicle) was reduced. Most recently market weakness was used to gain exposure to names that have disproportionately sold off such as Koc Industries (Turkish conglomerate) and Picard (French food retailer). Within emerging markets, the portfolio bought Israel and Singapore bonds on value grounds. In currency markets, we added exposure to the Colombian peso on supportive policy, the Brazilian real on value grounds, the Mexican peso on stronger US growth, the Peruvian sol after a significant sell-off, and the Korean won, given robust current account dynamics. We reduced positions in the Malaysian ringgit ahead of elections, the Chilean peso on more dovish central bank policy, and the Taiwanese dollar, which had performed well.

Portfolio positioning
Leading indicators suggest that in the second half of 2013, developed market growth should accelerate to at or above trend rate, helped by lower inflation, less fiscal drag, stimulus in Japan and looser lending standards in the US. Emerging market growth appears to have stabilised, but is being held back by the weak performance of global trade. This is due, in part, to continued softness in Chinese data as it moves to a less export and investment driven growth model. We believe recent moves by China's new leadership to clamp down on excessive credit growth, risk extending weakness across the developing world and putting further downward pressure on commodity prices. Despite the mixed backdrop, US monetary policy has reached an inflection point. Although actual tightening is still perhaps two years away, quantitative easing is likely to be scaled back by the Fed and markets are beginning to re-price accordingly. In the short run, some bond markets also appear to have weakened too much and may reverse. Emerging market debt, in particular, appears cheap. Developed government bond yields might also dip back temporarily, as central bankers remind investors that interest rates are still likely to be on hold in the US for a long time, and that, elsewhere, policy may be eased further. However, we expect yields to move into a new higher range, with 10-year US Treasuries trading between 2% and 4%, as they did for the initial 18 months after the Fed funds rate was cut close to zero. Within the government bond markets, we remain positive about countries such as Australia, which are still expected to cut interest rates in response to weak growth and low inflation. We are somewhat less cautious towards corporate bonds now that valuations have improved. However, the rise in volatility may persist due to greater policy uncertainty, limiting scope for yield spreads to fall. We also remain concerned about the potential for investor rotation out of corporate bonds; the asset class has been a major beneficiary of the search for yield in recent years. In currency markets, a less dovish Fed should provide additional support for the dollar against most currencies. Our fair value for the euro has slipped lower as a consequence. We expect it to revisit this year's lows and, ultimately, fall further. Soft data in China leaves commodity-linked currencies, such as the Australian dollar, vulnerable to additional weakness. Emerging currencies could also fall further if downside risks to growth materialise, but entry levels for many currencies now look reasonably attractive.

Market review
Global macroeconomic data mostly showed an improvement during the first quarter, although this was unevenly distributed and accompanied by numerous disappointments along the way. Indeed, the US was the real bright point among developed economies, as a strong bounce back in the first two months of the year more than made up for the relative softness seen in the fourth quarter of 2012. Risk appetite remained strong for most of the quarter, as expectations for ongoing monetary support from major central banks and a hoped-for cyclical improvement in the second half of the year assisted asset price performances. Global corporate credit spreads largely tracked sideways during the quarter, as relatively steep valuations were balanced by initially improving growth expectations. Core bond markets had simultaneously been under volatile upward pressure, although concerns surrounding the aftermath of the Italian election and the Cypriot bank bail-in provoked 'safe-haven' capital movements, which sent core yields swiftly back to levels seen around the beginning of the year. Local currency emerging market debt was mostly sideways to weaker during the first quarter, although with a fair degree of variation across markets.

Portfolio review
The portfolio had a reasonable quarter, although we did face comparative performance headwinds from interest rate positions and credit holdings. After a strong previous quarter, emerging market debt produced a small alpha contribution. However, currency risk had a particularly strong run during the first three months of 2013. Portfolio activity Asset allocation changes over the quarter have seen the portfolio's credit and emerging market debt holdings modestly reduced, with developed market sovereign bond holdings increasing. This has been accompanied by a reduction in interest rate risk, as valuations across several key bond markets are challenging over the longer term. There is evidence that cyclical growth may increasingly have been gaining ground in the US and key emerging markets, intensifying the risk to ultra-low long-end interest rates. On the currency front, the portfolio has added to its US dollar weight, primarily from the euro. Exposure to commodity currencies has also been net reduced. Within the credit component, the portfolio participated in a new issue from Cerba, a French laboratory operator, which is regarded as relatively recession-proof and has the potential to enjoy above-average market growth rates. The portfolio bought Affinity water, a strong player in the highly regulated UK water market, on the back of impressively stable revenue streams. We participated in a new issue from Heinz, related to the acquisition of the firm by Warren Buffett and 3G Capital, a private equity firm. Corporate issues that were trimmed during the quarter included Atalian, a French building management company, after taking profits on a favourable performance. Other bonds that were sold down on the basis of good performances, included TAM (Latin American airline) and Fresenius, a German-based healthcare company. Bonds that were reduced on the basis of changing fundamentals included healthcare firm, Care UK, which has grown acquisitive in recent months, raising the risk that leverage could increase in the short term. Also, a reduction in our profit expectations for New World Resources (Czech coal producer) led to reduced positions here. Within emerging markets, the portfolio took profits on Hungarian bonds, after a notable short squeeze provided a good opportunity to lock-in profits, whilst still maintaining an overweight stance. Also in Eastern Europe, the portfolio's position in the Czech Republic was reduced, even as these bonds still offer good carry. They are especially exposed to capital losses if core yields were to rise from prevailing levels. Relative improvements elsewhere saw positions in Mexico, Colombia and Peru being increased. Within currencies, we cut our exposure in the Malaysian ringgit before the upcoming elections, and policy risk moved us to decrease the overweight in India and increase the relative underweight in Turkey. Towards the end of the quarter, excessive market pessimism and peer-relative valuations encouraged us to build up a long position in the South African rand.

Portfolio positioning
Leading indicators remain upbeat, consistent with global growth at, or above, trend. This and supportive central banks continue to aid investor risk appetite. The better outlook, however, appears to rely heavily on the US. Japanese data is showing signs of responding to aggressive stimulus, but Europe remains mired in a recession which appears to have worsened. Developing country data has been mixed at best. In addition, commodity prices are failing to confirm a pick-up in growth, recent industrial surveys have been soft, and economic releases have begun to disappoint expectations again. This raises the fear that the pattern of weaker second and third quarter activity seen in recent years will be repeated in 2013. The Cypriot bail-in, Italian election and Spanish budget slippage provide additional reasons for caution. European Central Bank President Mario Draghi's promise to do "whatever it takes" continues to underpin investor confidence, but this may be tested if growth remains elusive and peripheral borrowing stays high. As a result, we continue to avoid the debt of peripheral euro-zone countries. Our analysis suggests there is little or no convertibility premium built into current spreads, and so the potential upside for yields outweighs the potential downside. The same is true, to a lesser extent, for corporate debt, where yield spreads over government bonds appear fully priced for a benign growth environment and supressed market volatility. While this may well be the most likely outcome, returns would be fairly unspectacular if this were to happen. In a more adverse environment, yield spreads could widen significantly. Emerging market bonds generally offer good value on a relative basis, with some markets, such as Brazil, looking cheap in absolute terms. In our view, the dollar should gain ground against the other major currencies over time. We also see value selectively among emerging market currencies.

The fund changed sectors from Global--Interest Bearing--Variable Term to Global--Multi Asset--Income on 01 January 2013

Market review
Data generally surprised to the upside in the fourth quarter of 2012, supporting a further recovery in risk appetite. Credit spreads and peripheral government bond yield spreads narrowed. Core government bond yields were flat to slightly lower over the period. Most currencies recovered modestly against the US dollar, with the exception of the yen, which sold off sharply.

Portfolio review
The Investec Global Opportunity Income Fund of Funds had a reasonable quarter, helped in particular by returns from emerging market (EM) bond markets. Corporate bond and interest rate positions also added to performance over the period.

Portfolio activity
During the quarter, the portfolio reduced exposure modestly to corporate and emerging market bonds. Duration was also cut significantly in anticipation of higher yields, especially in Japan and the US. Within currency markets, exposure was reduced to EM currencies, and sterling exposure was reduced in favour of the euro. Within credit, the portfolio bought bonds issued by Owens-Illinois, a global packaging company offering a decent yield; Virgin Media, a cable television company; and Johnson & Johnson, one of the few remaining AAA-rated companies, with attractive yields. The portfolio took profits in Care UK bonds after the company announced an additional acquisition, as well as in Arkema and Elster, ahead of a likely tender for their bonds. Within emerging markets, the portfolio bought South African bonds, which had sold off on labour disputes and the sovereign credit rating downgrade. We also added exposure to Malaysian bonds, given high real yields, and bought Polish bonds on lower inflation and weak growth. Exposure was reduced to Hungarian bonds, taking profits after a strong move. Bonds were also sold in Korea and Mexico on poor value and improving economic data. Within currency markets, weakness in the South African rand, the Czech koruna and the Indonesian rupiah was used to increase exposure. Positions were also added in Brazil due to attractive yields. Exposure was reduced to the Hungarian Forint, the Israeli shekel and the Turkish lira to take profits after strong performance. Rouble exposure was reduced in favour of the rand.

Portfolio positioning
Global economic activity continues to improve, most notably in the US and China, but also with signs of stabilisation in Europe. Our leading indicators are consistent with growth close to, or a little above, trend through 2013. This more positive economic backdrop would be expected to provide support for risk appetite, and risk assets have generally started the year on a positive note. In addition, more defensive assets, such as treasury bonds, are beginning to respond to the better growth outlook, with yields backing up despite the expectation of ongoing quantitative easing. We see scope for government bond yields to rise further, especially if data remains upbeat. Our models put yields still below fair value, even allowing for the current stance of monetary policy, and despite their recent sell-off. The yield pick-up offered by emerging market government bonds over developed markets continues to diminish and suggests some caution is warranted, with valuations becoming less compelling. Credit markets are likely to be supported by the better growth data, but are beginning to look less attractive, with yield spreads close to their postcrisis lows. Further outperformance will require a more significant increase in risk appetite, which we would view as a good opportunity to reduce exposure. Although the yen has already weakened sharply, we still see scope for it to fall further, given the new government's aggressive policy stance. The US dollar should benefit against the other major currencies from relatively better economic performance and structural improvements in competitiveness, in part helped by lower energy costs. However, a dovish (supporting lower interest rates) Federal Reserve may limit the dollar's gains. Outside the major currencies, we continue to see good prospects for many of the currencies of the developing world, especially if global growth continues to recover. An upbeat start to the year for financial markets is unlikely to go unchallenged for long, so we will retain a somewhat cautious approach to risk management. During the next 2 months, the US must address the debt ceiling and spending policy, which will prove difficult for a partisan president and congress, and may result in a messy outcome. We also remain unconvinced that the problems in the euro area have gone away and see a risk that these will resurface at some point in 2013. On balance, we expect a year of reasonable returns from most assets with the exception of low yielding debt, but anticipate bumps along the way, which should provide opportunities to adjust positioning to profit from market fluctuations.