Market review
The FTSE/JSE All Share Index made modest gains over the quarter (+1%) while in June, the index rose 1.9%. General miners performed well over the month, gaining 5.6% (-1.6% over the quarter). May's strong returns from gold miners were partially reversed in June, with the sector shedding more than 9% over the month. While the sector only lost 2.2% over the quarter, it has recorded the weakest performance for the year to date (-16.7%). Healthcare added 10.9% over the quarter, general retailers rallied a further 7.3% and food retailers closed 9.2% higher. Construction (-11.3%), household goods (-10.4%) and the personal goods sector (-5.7%) were weaker over the 3-month period. Telkom fell 20% in June after the South African government blocked Korea's KT Corp from acquiring a 20% stake in the fixed-line operator.

Portfolio review
The Investec Commodity Fund declined in value by 2.8% this quarter, outperforming its benchmark, which fell by 3.3%. Defensive positioning allowed the fund to outperform a falling market. The 'risk-off' environment of a weakening rand and industrial commodity prices, as well as a more resilient gold price, allowed the fund's gold shares to sharply outperform the mining houses and platinum counters. Both sold off on the weaker economic data. Kumba Iron Ore was again relatively resilient during the review period and detracted from the fund's relative performance due to our underweight position. We still believe that Kumba Iron Ore is overpriced, and we are discounting an iron ore price ahead of the spot price that, in turn, is at risk of a downward correction. The fund benefits from a weaker rand. Most of our overweight positions have very large South African production bases. This makes them excellent rand hedges in contrast to our underweight positions, which are more biased towards foreign costs and production. To this end, our preference for the precious metals equities and Sasol, over Mondi for instance, makes the fund well positioned for the earnings upgrades that should follow a 'risk-off' rand sell-off.

Portfolio activity
We changed our target model towards the end of the quarter and traded accordingly:
> We reduced our weighting in BHP Billiton to neutral in anticipation of looming oil- and coal-related downgrades.
> We bought more Anglo American, to a reduced underweight position, after significant underperformance by the counter and in anticipation of the Codelco dispute being resolved.
> We bought Impala Platinum, to a less underweight position, after the fundamental dynamics of the platinum sector started to improve due to capacity cuts within the sector.
We still believe that both Anglo American and Impala Platinum will earn less than consensus estimates and consequently, we remain comfortably underweight.

Portfolio positioning
The physical market reflects a consistent picture of lacklustre demand across many commodities. We expect a recession in the euro zone and a continuing slowdown in the growth rate of key commodity demand sectors in China. Consequently, we expect the weak pricing environment to persist for most commodities, except gold. For these reasons we remain defensively positioned for a 'risk-off' environment of a weakening rand and industrial commodity prices, along with a resilient gold price. This should allow the fund's gold shares to continue outperforming the mining houses and platinum counters. We also favour Sasol for its rand hedge qualities. We still believe that the gold price will rise to $1800 next year and that gold producers are entering an earnings 'sweet spot', which will persist for several years. We expect weak economic growth to lower industrial commodity prices, keeping gold miners' input costs in check. Continued monetary debasement, used to combat economic weakness, should boost the gold price and consequently the producers' revenues. Investors are grouping gold shares with industrial commodity producers and derating both in the belief that the industrial commodity cycle has peaked. We believe that gold producers' earnings will continue to rise while those of industrial commodity producers will stall, and that the ratings on gold shares will recover. Sasol remains a high conviction overweight holding in the fund. We still expect Sasol to receive earnings upgrades despite a weaker oil price, as currency moves are more than offsetting the lower commodity price. We continue to position the portfolio based on our earnings forecasts relative to consensus expectations. This is in accordance with our commodity price views and company modelling work, which pre-empted these revisions by the market. We are hopeful that the spate of earnings revisions made by the market in response to the resilient gold price, lower industrial metal prices, and a weaker rand, will lead to renewed outperformance of the active positions held in the fund.

Market review
The FTSE/JSE All Share Index gained 6% in the first quarter, but most of the positive performance came in January. Resource shares lagged the rally and gold miners (-14.9%), Impala Platinum (-8.9%) and Sasol (-3.9%) were notable underperformers. Financials gained 12.8% and industrials added 10.5%, driven by strong performances from consumer goods and consumer services.

Portfolio review
The Investec Commodity Fund declined by 1.2% in value this quarter, outperforming its benchmark, which fell by 3.4%. So far, 2012 has been characterised by the market taking on risk ('risk-on'): with a preference for platinum over gold and a strong rand. The degree of appetite for risk and the supply issues from Impala Platinum were unexpected. This undermined our preference for gold equities over platinum equities, despite a very poor reporting season and macro operating environment for the platinum sector. Once the supply issues of Impala Platinum are solved and risk appetites normalise, we expect the market to favour gold equities over platinum equities in 2012. Even though there wasn't a recovery in the iron ore price after the previous quarter's large $50 fall, Kumba Iron Ore was again relatively resilient during the review period. This detracted from relative performance. We still believe Kumba Iron Ore is overpriced, and we are discounting an iron-ore price ahead of the spot price that is, in turn, at risk of a downward correction.

Portfolio activity
This quarter we focused on shifting the portfolio to be better positioned for a 'risk-off' environment after the initial 'risk-on' start to the year. We sold some Anglo American shares to end the quarter with an underweight position and bought the more defensive BHP Billiton. Anglo American seems set for a multi-year legal dispute with Codelco; their Minas-Rio project continues to struggle, and the company announced a 2011 dividend almost 50% lower than it paid in 2007/08. On the other hand, BHP Billiton's energy portfolio, superior margins and dividend yield, plus relatively cheap growth all support a strong investment case. BHP Billiton's petroleum business, which constitutes over 20% of group earnings before interest and tax, provides an effective hedge against the oil cost component. Sasol remains a high conviction overweight holding. We base this position on our global energy outlook as well as micro research into Sasol's valuation.

There was a series of unfortunate events in the platinum sector during the reporting period, including poor metal prices, Section 54 safety stoppages, labour unrest, and Zimbabwean political issues. We remain underweight the platinum equities sub-sector, but we like Anglo American Platinum more than Impala Platinum. During the review period, we also maintained our overweight position in Gold Fields and AngloGold Ashanti. Finally, we became buyers in the paper sector. After successfully being underweight last year, we bought Sappi to an overweight position.

Portfolio positioning
The physical market reflects a consistent picture of lacklustre demand across many commodities. We expect a recession in the euro zone and a continuing slowdown in the growth rate of key commodity demand sectors in China. Consequently, we expect the weak pricing environment to persist for most commodities, except gold. We continue to position the portfolio based on our earnings forecasts relative to consensus expectations. This is in accordance with our commodity price views and company modelling work, which pre-empted these revisions by the market. We hope that the market's spate of earnings revisions in response to the strong oil price, resilient gold price and weaker industrial metals prices, will lead to renewed outperformance of the portfolio's equity positions. Our core positions are as follows:
? We are overweight Sasol: We expect Sasol to earn R50 per share, ahead of the market's consensus earnings.
? We are overweight gold producers: Our gold price forecasts are ahead of the market and we believe that gold companies can beat earnings expectations.
? We are underweight the platinum sector: Despite recent significant platinum supply disruptions, the spot rand platinum group metals (PGM) basket price remains 30% below our estimate of a sustainable South African industry incentive price.
? We remain underweight Kumba Iron Ore: We believe that the market is too optimistic about this share's earnings. Over the longer term we forecast a significant downside to current iron ore prices and Kumba Iron Ore's margins.
? We are still underweight mining houses: Concerns about industrial metals prices leave Anglo American more exposed than BHP Billiton, which has a more defensive energy portfolio.
? We maintain a neutral position in the paper sector: We prefer Sappi to Mondi based on product mix and valuation metrics.

Market review

The FTSE/JSE All Share Index added 8.4% in the fourth quarter and rose 2.6% over the year. The broad industrial grouping outperformed both financial and resources over the quarter. Food and general retailers fared particularly well, closing up 20.3% and 15.5% higher respectively. Life insurers added 16.9% over the quarter while the smaller basket of technology stocks rose 12.1%. Gold and platinum miners lagged the overall index, ending flat over the quarter. General miners performed in line with the broader market while Sasol, the only company within the oil and gas sector, ended 18.6% higher.

Portfolio review

The Investec Commodity Fund increased by 6.1% in value over the three months to the end of December, underperforming its benchmark, which rose by 7.3%. The strong broad-based resources rally in the quarter was assisted by another euro debt bailout plan, better economic data out of the US and speculation over the introduction of monetary easing in China.

Despite rising in absolute terms, our long-held overweight position in gold shares (Gold Fields, AngloGold and Durban Deep) underperformed the buoyant market, and cost the fund alpha. On the positive side, however, our other long-held overweight position, Sasol, was the largest contributor to outperformance. Other contributors were the fund's underweight positioning in the platinum sub-sector (Impala Platinum, Northam and Lonmin) and the paper sub-sector (Mondi and Sappi).

Rand weakness is very beneficial for the fund. Most of our overweight positions have very large South African production bases and are thus excellent Rand hedges. To this end, our preference for the precious metals equities and Sasol, over Mondi and BHP Billiton, makes the fund well positioned for the earnings upgrades, which should follow the recent Rand sell-off.

Portfolio activity

During the quarter we further increased our overweight position in Anglo American. We think Anglo American has further value to be realised from delivery of growth and de-gearing, leading to special dividends and further growth project approvals. Near-term production growth from Barro Alto nickel, Kolomela iron ore and Los Bronces copper could provide decent cash flow kickers over the next two years. We forecast Anglo American's free cash flow yield at 13% for the 2012 financial year.

The fund was underweight the platinum sub-sector and during the quarter we sold more shares in Impala Platinum. Given the possibility of renewed electricity disruptions from Eskom, we would prefer to have exposure to the platinum group metals (PGM) through the metals rather than the equities. Within the platinum sub-sector, we continue to prefer Anglo American Platinum over Impala Platinum. During the review period we maintained our overweight position in gold shares - Gold Fields and AngloGold.

Portfolio positioning

Several factors are likely to support commodity prices over the medium term. These include continued urbanisation and the industrialisation of populous and fast-growing emerging markets; loose monetary policies globally; potential for commodity intensive fiscal stimulus; supply constraints caused by project and infrastructure delays; and potential for higher demand for commodities for inflation protection.

We continue to position the portfolio based on our earnings forecasts relative to consensus expectations. It is gratifying to see that earnings are being upgraded for the equities in which we are overweight, and are being downgraded for the equities in which we are underweight. This is in accordance with our commodity price views and company modelling work. We are hopeful that the spate of earnings revisions being made by the market, in response to the very strong oil price, resilient gold price, weaker industrial metals prices and weaker Rand, will lead to continued outperformance of the equity positions held in the fund. To summarise:

- We remain overweight mining houses, but prefer Anglo American to BHP Billiton and African Rainbow Minerals. We are ahead of the market in terms of earnings for Anglo American, chiefly due to near-term volume growth. Anglo also offers a more defensive balance sheet, better rand gearing, and a suite of commodities less exposed to an industrial slowdown than its peers.

- Sasol remains a high conviction overweight holding. This position is premised both on our global energy outlook as well as on micro research into Sasol's valuation. We expect Sasol to earn R50 in the 2012 financial year, remaining 10% ahead of the market's consensus earnings.

- The portfolio is overweight gold producers. We expect gold prices to continue to rise from current levels, as real interest rates should remain low. Our gold price forecasts are ahead of the market and we believe that gold companies can beat earnings expectations.

- We are underweight the platinum sub-sector. There is downside risk to earnings at current spot PGM prices.

- The portfolio is also underweight Kumba Iron Ore (KIO) as we believe that the market is too optimistic on this share's earnings. Longer term, we forecast significant downside to current iron ore prices (and KIO's highly-elevated margins), which are unsustainable in our view, due to looming iron ore oversupply.

- Our underweight position in the paper sub-sector is because we believe that Sappi in particular has too much North American and European exposure (77% of capacity mix) and a poor valuation (expensive relative to its peer group).