Market review
The FTSE/JSE All Share Index (ALSI) closed the third quarter down 5.8%, with significant rand weakness partially offsetting the sharp fall in commodity prices. The index lost 21.3% in US dollars. Significant dispersion marked the quarterly performances, with sectors most exposed to the SA economy generally outperforming the broader market. The food and general retail sectors fared particularly well, closing 6.4% and 1.7% higher, respectively. Banks lost 3.3%, while short-term insurers gained 6.9% over the three months. The health care sector, up 2.5%, continued its recent strong performance. Commodity-exposed rand hedge stocks fared poorly over the quarter, but even here there was significant dispersion. Diversified miners lost 17.3% and platinum miners shed 9.7%. The gold sector posted one of its strongest relative performances, gaining 19.5% over the review period.

Portfolio review
Global markets remained in turmoil during the third quarter of 2011, with policymakers on both sides of the Atlantic seemingly paralysed by ideological and factional disagreements. The lack of clarity around policy implementation and signs of slowing economic growth hurt sentiment. This translated into weaker equity markets with perceived risk assets such as commodities and emerging market currencies (including the rand), enduring a particularly tough period. Given the resource-heavy nature of the ALSI 40 Index, the domestic small and mid cap sectors proved somewhat more defensive over the review period. The Investec Emerging Companies Fund returned -2.9% for the quarter, in line with its peers and well ahead of the ALSI, which declined 5.8%.

Given investors' heightened concerns around the potential for a sovereign default in Europe, and the continued efforts by monetary authorities to weaken their currencies, it was not entirely surprising to see gold scaling new highs over the quarter. The fund benefited significantly through its exposure to the NewGold exchange traded fund, a proxy for the rand gold price, which increased by 24% during the quarter. The fund also derived material alpha (outperformance) from its gold equity holding, Pan African Resources. In many ways this counter is quite different from the traditional South African gold company - it has a strong balance sheet, a conservative and well-respected management team, an appealing yield and encouraging growth prospects. Despite the share's recent rally, the expectation of market-topping results in the short to medium term may prove to be the catalyst for further share price appreciation. The fund also benefited from its positions in Metair and Cashbuild, two exceptionally well-run businesses, which have managed to rise above the challenges of their respective automotive component and building material markets.

On the downside, the fund's exposure to cyclical counters such as Imperial, Mondi and Aquarius Platinum, hurt relative performance. Imperial and Mondi were caught up in the blanket approach applied by investors in the sell-off of shares with exposure to Europe. Both of these companies have highly rated management teams and remain appealing from a valuation perspective. Imperial has a forward dividend yield in excess of 5% and Mondi traded below book value at quarter-end. We are convinced that these counters can add material alpha going forward. Aquarius Platinum is currently discounting a somewhat catastrophic outcome regarding its assets in Zimbabwe - any slightly less-bearish news on that front is likely to drive the counter materially higher.

Portfolio activity
It was an active quarter from a trading perspective. We made use of the opportunity to take profits on those shares which had held up well since the commencement of the market pullback in July. These included Pioneer Food Group, Coronation, Howden, Altech and Pinnacle Technology. We disposed of Datatec and AFGRI over the review period. AFGRI delivered a particularly poor trading update prior to its September results release. Proceeds from these sales were switched into a number of defensive counters including hospital groups Life Healthcare and Medi-Clinic, which were acquired early in the quarter as global macro data started to deteriorate. They offer strong medium-term earnings growth with decent visibility at reasonable ratings. Additional gold exposure was also sought in the form of DRDGOLD and Pan African Resources. These gold equities are trading at multi-year valuation lows and also provide insurance to the portfolio if there were to be a catastrophic sovereign or banking event in Europe.

Portfolio positioning
Looking ahead, the South African Reserve Bank has an inflation tug-of-war over which to officiate. On the one hand, recent rand weakness will lead to moderate inflationary pressures, whilst on the other, slowing GDP growth driven by the global downturn will help keep inflation in check. On balance, interest rates are likely to remain on hold well into 2012. Rand depreciation should provide some assistance to local mining and manufacturing operations. However, this is likely to be counteracted by an extremely uncertain volume environment due to the sluggishness of our developed market trading partners.

In this challenging economic scenario, we place a strong emphasis on company valuations and demand a high margin of safety to compensate for macro uncertainties. We continue to prefer those attractively-priced, well-managed counters which in many cases remain out of favour with the marketplace. The small cap space continues to be characterised by a sense of neglect, allowing patient investors the opportunity to accumulate quality companies at undemanding prices. Valuations remain appealing as evidenced by the fund's forward price earnings ratio of 8.1 times at the end of September. An extremely healthy dividend yield of 4.7% complements the total return prospects, which continue to indicate that meaningful real returns are achievable into the medium term.

Market review
The FTSE/JSE All Share Index (ALSI) closed 0.6% lower over the review period, with the market falling 2% in June. Resources were the biggest detractors, with gold miners and platinum stocks down 13% and 7.7% respectively. Diversified miners lost 3.3%. Health care (6.9%), food producers (4.5%) and telecommunication (5.4%) performed well. Banks gave up 0.9%, with flat returns year to date. Sasol, the only oil & gas sector constituent, fell 8.5% in the second quarter after a strong first three months of the year.

Portfolio review
Global markets continued their tug-of-war in the second quarter of 2011, struggling to find consistent direction. On the one hand, supply constraints related to Japan's earthquake, southern European solvency issues and a fast-approaching US debt ceiling, kept markets from shifting materially higher. On the other hand, the continued accommodative fiscal and monetary policies of the major central banks ensured that investors remained interested whenever pullbacks occurred. The local equity market ended weaker over the quarter, with sector leadership transferring to industrials from resources. The latter was impacted by lower commodity prices as a result of global growth concerns. The Investec Emerging Companies Fund's significant industrial exposure provided a catalyst for the portfolio to deliver a solid absolute performance of 2.5% over the quarter. This contribution also ensured that the fund has delivered respectable first quartile returns relative to its peers over the past year.

South Africa's manufacturing rebound has in most cases been pedestrian, but one sub-sector, automotive production, has benefited handsomely in recent times from the certainty created by the replacement of the previous Motor Industry Development Programme (MIDP) initiative with the new Automotive Production and Development Programme (APDP). This new legislative framework has installed confidence in global Original Equipment Manufacturers (OEMs), inspiring numerous high-volume vehicle initiatives. The Investec Emerging Companies Fund, through its top-ten exposure to Metair Investments as well as the recently acquired Kap International, derived material alpha (outperformance) over the past quarter from the automotive component industry's continued resurgence. The fund's investments in select financial counters, including Coronation Fund Managers, Peregrine and PSG Group also aided relative performance. PSG in particular enjoyed another exceptional quarter, returning in excess of 24%. In fact, PSG has nearly doubled over the past year, due initially to the continued robust performance of its associate Capitec and then, in more recent months, spurred on by the excitement surrounding its latest primary and secondary schooling venture, Curro Holdings, which listed in June. The fund's exposure to Steinhoff International detracted from relative performance over the quarter. A similar period was witnessed in 2010 when Greek sovereign debt concerns initially surfaced. For the time being, default has again been averted, and sentiment towards Steinhoff, which has significant European exposure, should improve heading into the third quarter of 2011. Its valuation remains cheap and with the spotlight fading from Europe, we are confident that it can again be a material alpha generator for the fund, as happened in the latter part of 2010. One of the fund's smaller market cap investments, electrical retailer Ellies Holdings, also endured a challenging quarter. The existing earnings stream is already undervalued by the market. Combine this with the potential for Ellies to achieve a material market share from the roll-out of Digital Terrestrial Television (DTT) equipment and one has the ingredients for a significant improvement from current levels.

Portfolio activity
It was an active quarter from a trading perspective. Northam Platinum was sold out of the portfolio after it had materially outperformed its platinum sector peers. Profits were also taken on Capevin Investments, Coronation Fund Managers and Famous Brands, with the latter being exited from the portfolio. A switch was undertaken within the healthcare sector. The fund's exposure to Netcare was shifted into Medi-Clinic and Life Healthcare, as the latter two offered more appealing medium-term growth opportunities.

Portfolio positioning
Looking ahead, the recent moderation in commodity prices (oil in particular) will assist in keeping domestic inflation at more manageable levels. The South African economy continues to deliver moderate growth, although it is underperforming compared with many of its developing nation peers. An improvement in the inflation outlook, coupled with largely jobless domestic growth, should see interest rate hikes pushed out towards year-end or early 2012. Despite this, retail counters remain unappealing. Ratings are at the upper end of their historic averages and the local consumer continues to take strain under the burden of public sector administrative price hikes, such as electricity and rates. We continue to prefer those attractively-priced, well-managed counters which remain out of favour with the marketplace. Indeed, there has been a lack of interest in the small cap space, allowing patient investors the opportunity to accumulate quality companies at undemanding prices. Valuations remain appealing as evidenced by the Investec Emerging Companies Fund's forward price earnings ratio of 8.4 times at the end of June, more than 20% below that of the ALSI as a whole. A dividend yield of 4.4% complements the total return prospects, which continue to indicate that meaningful real returns are achievable into the medium term.

Market review
Local equities mimicked global market volatility, recovering January's losses and ending the quarter marginally higher (1.1%). Resource counters performed best, with Sasol, the only oil & gas producer constituent in the index, rising 13.1%. Diversified miners closed 3.2% higher while paper stocks added 15.5% over the period. Platinum stocks lost 10.5%. Both the industrial and financial sectors underperformed the broader market, closing down 0.3% and up 0.7%, respectively. Again, there was substantial dispersion amongst the various sub-sectors, with construction (-25%), food producers (-4.3%) and pharmaceuticals (-11.5%) underperforming, while mobile telecommunication (3.9%), life insurance (6.4%) and industrial metals (14.5%) enjoyed strong returns.

Portfolio review
The first quarter of 2011 was again characterised by significant volatility. This was hardly surprising, given the political turmoil in the Middle East and North Africa region and economic upheaval in Japan after the devastating earthquake and tsunami during March. Remarkably, developed markets in particular enjoyed a fairly satisfactory quarter, as the primary driver remained the accommodative fiscal and monetary stance of the major central banks. Locally, the FTSE/JSE All Share Index was driven by the resource-heavy Top 40, whilst the small / mid cap sectors, which have more of an industrial focus, lagged somewhat. The Investec Emerging Companies Fund declined by 3.1% over the quarter - a respectable performance relative to its peers which, on average, fell 4.4%. At the end of the previous quarter, it was commented that we retained our conviction in the fund's exposure to international paper and packaging company Mondi, which endured a weak close to 2010. We are pleased to report that our confidence in the company was well rewarded over the past three months, as the share rallied 22% and was thereby the largest alpha generator for the quarter. A strong set of results proved to be a powerful catalyst for the share. We believe that the impressive management team and their well-defined strategy will continue to add value for shareholders going forward. The fund's underweight position in building and construction shares also bolstered relative returns over the period. The likes of Murray and Roberts as well as PPC fell sharply as they significantly missed expectations when they released recent market updates. We believe that the construction sector will continue to endure challenging times ahead, as order books decline and margins contract due to increased competition on a fewer number of post World Cup projects. On the other hand, payment solutions specialist Blue Label Telecoms detracted from performance over the period, as news of Telkom's cancellation of their contract with Multi-links in Nigeria weighed on the share. This cash-flush, entrepreneurial business remains well-positioned to benefit from the continued expansion of automated payment solutions on a global scale and hence we envisage the share recovering to levels which are more indicative of its fair value. Hospitality Property Fund B shares also endured a tough quarter, but recently concluded transactions as well as a mediumterm recovery in the hotel industry, should provide material upside from the current depressed share price levels.

Portfolio activity
A number of new counters were introduced to the portfolio over the quarter. These included diversified industrial, KAP International, as well as building retailer Cashbuild. The former is set to benefit from consolidation in the plastic bottling industry whilst the latter is an exceptionally well-run, cash-based retailer that continues to take market share in the lower end of the local building materials sector. These exposures were added at the expense of certain shares which in our opinion have exceeded their fair value. These included retailers such as Clicks and Mr Price which have been exceptional performers over the past two and a half years. We also disposed of construction counter Aveng, which has outperformed most of it sector peers due to its superior balance sheet and order book. Profits were taken on Famous Brands and Invicta, which remain well-run businesses, but we believe that growth prospects are now more than reflected in their share prices.

Portfolio positioning
Given the rise in most commodities during the first quarter of 2011, forecasts for the local economy continue to indicate solid growth prospects for the remainder of the year. Although the strong rand continues to provide a headwind, there are indications that the improved global economic climate is starting to feed through into mining and certain niche manufacturing sectors such as automotive production. The sharply higher oil price has, however, brought forward the prospect of higher interest rates as inflation heads northwards into the second half of the year. This makes us cautious towards interest rate sensitive counters such as the clothing and general retailers where share price ratings remain far too demanding. We prefer those wellpriced counters which are currently out of favour with the market place and, which for instance, could perform well when the rand begins to weaken from its current extended levels. Overall, small / mid cap valuations remain appealing as indicated by the Investec Emerging Companies Fund's forward price earnings ratio of 8.3 times and a healthy forward dividend yield of 4.4%. A combination of careful stock-picking and attractive valuation levels should see patient investors benefit from exposure to the sector and continue to enjoy meaningful real returns into the medium term.

Market review
After a volatile first three quarters of 2010, risky assets responded to prospects of an improved economic outlook and ended the year firmly in positive territory. During the fourth quarter, investors switched out of bonds into equities. Global equities added 8.8% over the period, while global bonds lost 1.8% in US dollars. Local bonds could not shrug off the global bond sell-off, ending up only 0.7% over the quarter. Cash, as measured by the STeFI, returned 1.6% for the three months to the end of December. The best performing asset class over the past year was the listed property sector. The sector continued to show strong returns, despite weak property fundamentals. Listed property gained 3.1% in the fourth quarter to rise by 29.6% for the year. Local equities participated in the global equity rally. The FTSE/JSE All Share Index rose 9.5% in the fourth quarter on top of the 13.3% gain over the prior three months, ending the year 19% higher. Resources (16.5%) proved to be the top performing sector, with financials flat and industrials up 7.8% for the period. Amongst the resource counters, diversified and platinum miners (both up 19.2%) did best, while short-term insurers (15.4%) and some smaller industrial sectors (media and support services) beat the overall market. Stocks predominantly focused on the South African economy fared worse. Construction ended the quarter 3% higher, banks closed flat, while food and general retailers added 2.9% and 6.2% respectively.

Portfolio review
A renewed commitment by monetary and fiscal authorities across the globe to continue to promote reflationary policies, saw international bourses push higher in the final quarter of 2010. Bolstered by a further 50 basis points of rate cuts, domestic small/mid cap counters shared in the move, continuing their bullish trend of the third quarter and aiding the Investec Emerging Companies Fund to return 10.6% for the final quarter. Over the year, the fund was strong in both absolute and relative terms, returning 27.6%, outperforming its peer universe by 2%. A number of the portfolio's smaller market capitalisation shares made meaningful contributions to fund alpha in the fourth quarter. These included Nu World Holdings and Pinnacle Technology, both of which have enjoyed a resurgence in volumes in their household goods and IT equipment segments respectively. Rand strength and lower interest rates boosted product affordability for their customers. South Ocean Holdings, which listed in 2007, also aided fund performance as the copper cable producer surged 32% over the quarter on the back of the sharply higher copper price. One of the portfolio's largest exposures, Coronation Fund Managers, continued its bullish price trend to end the year a staggering 135% higher. Helped by a firmer equity market and solid inflows, this high-yielding counter was amongst the largest alpha generating stocks for the Emerging Companies Fund during 2010. Conversely, international paper and packaging company Mondi detracted from relative performance, as the share drifted 5% lower over the quarter. After a strong positive move earlier in the year, the share was subjected to profit-taking by foreign investors towards year end. The company is backed by a sound management team that has repositioned the business to focus on more attractive emerging market economies. Management has also consistently delivered financial results ahead of market expectations. Hence, we remain confident that the fund's exposure to this counter will be well rewarded in the future.

Portfolio activity
A number of shares were sold during the period. These included chicken producers Country Bird and Sovereign Food. The two companies are struggling from depressed demand as well as a surge in imported competition, which has driven down chicken prices. We also disposed of construction counter Basil Read. Sector margins continue to come under pressure as project bidding becomes increasingly competitive, given the lack of large scale projects post the 2010 World Cup. We took profits on a number of counters which performed exceptionally well in 2010, including Coronation, Imperial and Mr Price. Proceeds from these sales were reinvested in a couple of new portfolio exposures, namely Barloworld and HCI. Barloworld was purchased in light of the fact that it is set to benefit from the return of yellow-equipment demand on the back of rising commodity prices. HCI, on the other hand, has lagged many other interest rate sensitive counters. Given its considerable exposure to gaming assets, the company is well-positioned for earnings growth due to the increase in consumer discretionary income.

Portfolio positioning
In 2011, the South African economy looks set to deliver moderate positive GDP growth, bolstered by a recovery in the mining sector. Inflation expectations remain benign, despite the recent surge in commodity prices. However, there now seems fairly limited scope for further interest rate cuts. Given improving prospects for global growth and accommodative domestic monetary policy, conditions remain favourable for local small/mid cap counters in the year ahead. Despite the sector's solid recovery over the past two years, valuations remain undemanding as illustrated by the Investec Emerging Companies Fund's forward price earnings ratio of 9.1 times. The fund is underpinned by a solid 3.7% dividend yield. Neglected counters, particularly at the small market capitalisation end of the spectrum, continue to provide stock-picking opportunities where quality shares can be acquired at extremely appealing valuation multiples. We retain our preference for companies that have strong management teams, with well-defined strategies, which can ultimately drive strong cash flow generation. Overall, the environment remains conducive to patient investors achieving meaningful real returns from the sector over the medium term.