Market review
The third quarter of 2009 provided evidence that the global economy is on the mend. A sharp fall in the rate of job shedding, stabilising house prices, a turnaround in consumer confidence and expanding industrial production in developed economies, marked what is likely to be the end of a deep and protracted global recession. Lawmakers seem confident that the massive reflationary policies introduced over the last 18 months are working their way through the system. However, the outlook remains uncertain and room for a withdrawal of stimulus may still be some time away. Investors face two possible outcomes. The first is a strong economic upturn off a low base, driven primarily by the replenishment of global inventories. Alternatively, the recovery could be disappointing and may not provide the earnings to warrant the strong re-rating across global equity markets. Over the quarter, global equity markets continued to head higher, with a 17.6% rise between July and September over and above the 21% gain in the second quarter of 2009. Cyclical stocks led markets higher, reflecting an improving economic outlook. Financials (25.9%), materials (21.5%) and industrials (19.8%) all ended strongly, while utilities (11.3%), healthcare (12.3%) and energy (12.9%) lagged the overall market. Emerging markets extended their gains over developed markets, closing the quarter 21% higher and ahead of the global composite for the third consecutive quarter. (All returns are in US dollars). Risk appetite has greatly improved over the last few months. The rand continued to benefit from massive foreign portfolio flows into the local bourse, more than offsetting the outflows seen in the second half of 2008. The local currency appreciated by nearly 3% over the third quarter, pushing the year's gains to 22% against the US dollar.

Portfolio review
The Investec Worldwide Equity Feeder Fund had a good quarter. The resources super sector made the greatest positive contribution to performance over the period, largely as a result of good stock selection in the chemicals and mining sectors. Amongst the miners, our holdings in Grupo Mexico and Vedanta Resources proved particularly positive, whilst our position in the chemicals companies, BASF and LG Chemical, also made significant positive contributions. Positions in the defensive areas of the consumer super sector hurt relative performance, with the pharmaceuticals and healthcare sectors detracting the most value. Our holdings in US healthcare firms Becton Dickinson & Co. and Laboratory Corporation of America both underperformed, along with our pharmaceutical stocks Teva Pharmaceutical Industries and Merck.

Portfolio activity

Significant buy
ITT Educational Services has been appearing as a strong value case for some time, as the stock has been suffering from regulatory concerns over private education. Recent legislative activity suggests that any rule changes are unlikely to be of major impact to earnings and as a result, we anticipate a re-rating of the stock.
Dell is a high quality, attractively valued computer assembler and retailer. However, investors have been concerned about the current low levels of spending on computer hardware with the replacement cycle well overdue. This replacement cycle may follow the launch of the Windows 7 operating system in late October. We think that this will see momentum re-emerge for the group.

Significant sells
Agco was sold following a disappointing quarterly result which saw much slower than expected sales activity, particularly in Europe. Although a cyclical rise in activity in the farming sector is expected in 2010, the extent of the sales decline puts pressure on the forward valuation case.
Research in Motion was removed from the portfolio after its earnings report revealed a decline in market share and pressure on selling prices. As competition in the smartphone market heats up, these forces are likely to intensify. Although the new product cycle will see new models from RIM, other companies are also stepping up with improved offerings.

Portfolio positioning
As we approach yet another earnings season we will again be looking for signs of sales expectations being surpassed. So far this year companies have succeeded in beating earnings expectations primarily through cost cuts; top line positive surprises have been a rare commodity. This is not to say that positive sales surprises have been non-existent, but they have been largely confined to the technology sector where groups such as Intel, National Semi and Texas Instruments have raised guidance. A broader revenue surprise would certainly result in greater confidence in the sustainability of the recent market rally. Traditional value based sector leadership now appears highly dependent on a significant economic recovery materialising in the near term, enabling a rapid normalisation of cash flow returns on investment. The prospect of further significant flows into equities gives some hope of a further re-rating of the market. As yet flows have been largely diverted to the higher yielding area of the fixed-income markets. Although positive flows have been channelled towards equities, the net volume is small by historical bull market levels. As yields in the fixed-income area continue to decline, it seems probable that equities will receive an increasing level of investor attention. At the same time while we have seen a significant supply of new paper, particularly from China and the financial sector, paper retirement through buybacks and merger and acquisition activity has been very low. Any change to this equation should be beneficial to equity markets and some signs of renewed merger and acquisition activity and buy-backs are beginning to emerge. Overall, we continue to focus on high quality companies, offering value and an improving operating performance and which are receiving increased levels of investor attention. We believe this strategy is likely to provide long-term investment success.

Market review
Economies and asset markets across the globe had a good second quarter. The rate of contraction in economic activity slowed sharply and risk assets such as equities, corporate credit and commodities generated high positive returns. Policy makers seemed increasingly comfortable that measures introduced at the height of the financial crisis were gaining traction and forward-looking data indicated that the global economy may have reached an important turning point in the current quarter. While conflicting signs of 'green shoots' prevail, markets and economists seem unconvinced that a 'normal' recovery will ensue from here on. The improved growth outlook was reflected in sharply higher equity prices. The MSCI Word Index gained 21% over the second quarter. Markets were led higher by cyclical sectors: financials gained 38%, materials ended 27% higher and industrials rose 24%. Defensive sectors, which had outperformed the market as economies collapsed, lagged the upturn, but still recorded absolute gains over the quarter. Healthcare rose 9%, telcos increased by 10% and utilities ended the quarter 13% higher. The S&P 500 Index gained 15.9%, lagging both the German Dax 30 Index (24.4%) and UK FTSE 100 Index, which gained 26% over the quarter (all in US dollars).

Portfolio review
The Investec Worldwide Equity Feeder Fund's returns were negative in rand terms over the quarter, due to the rand's strong appreciation against the dollar. During the market rally in April and May, the portfolio suffered from being underweight the most oversold sectors that represented extreme value, such as banks, real estate and autos. Indeed, being underweight the lower quality banks that were close to failing in January particularly hurt our performance during the second quarter rally, although our position in National Bank of Greece helped. The top two sector contributors to performance during the quarter were holdings in oil & gas and mining, which benefited from rising crude oil prices and robust demand signals from the Chinese economy. At a stock level, the biggest contributors to performance were Addax Petroleum and Icap, the world's largest inter-dealer broker. The two biggest detractors from performance were Fidelity National Financial, the US specialty finance group and Best Buy, the US consumer electronics retailer.

Portfolio activity
In May the portfolio bought Goldman Sachs and in June, MSCI, the market indices and performance services company. At the end of the quarter the portfolio retained its underweight position in banks and its overweight exposure to the speciality finance and insurance sectors. The autos sector, where the portfolio is underweight, also made a substantial recovery during the quarter. In April we purchased a position in Toyota Motor Corp, the highest quality car manufacturer in the sector, and in June we bought Nissan.

Portfolio positioning
The portfolio remains defensively positioned. However, recent trading and positioning have broadened the portfolio across cyclical sectors displaying better momentum and defensive sectors offering better value. We take some comfort from the general broadening of the quarter's market rally from low quality, highly leveraged companies to those which represent value and quality. However, it seems that the sustainability of the market recovery is going to depend largely upon the ability of the corporate sector to deliver some positive earnings surprises in the approaching results season. Whereas the first quarter of the year did indeed see a substantial positive surprise, it was clear that this had been as a result of corporations cutting costs faster than analysts had anticipated. Few companies beat earnings expectations due to better than expected top-line growth and the majority of companies ended up having their sales growth forecasts trimmed for the year. The nature of the rally, where investors have driven more cyclically-oriented issues dramatically higher, requires this delivery of earnings and it remains unclear from the macro environment as to whether or not it can be achieved. Another quarter of weak top-line growth is likely to lead to some margin compression, as companies should find it more difficult to cut fat now than they did in the early stages of the economic downturn. Although technical momentum remains unhelpful, value, quality and operating improvements seem to be increasingly rewarded and should enjoy more attention as the normalisation process continues.

Market review
The first quarter of 2009 was marked by continued economic weakness and financial market volatility. The severe global economic recession was reflected in a drastic contraction in final demand and international trade and sharp declines in capital investment. Industrial production was substantially weaker than in any other recession post the 1930s Great Depression; company earnings plunged and asset prices continued to drop.

The quarter was also marked by further announcements of fiscal and monetary packages intended to stabilise the global banking sector and support an eventual recovery in economic activity. The latest round of policies in the form of company bailouts and public-private investment programmes brought along some hope of stabilisation, but provided little evidence of successful implementation.

An improvement in some economic indicators and a better earnings picture for three major US banks saw risk appetite returning to global markets and equities retracing from heavily oversold levels. The MSCI World Index rose by 7.6% in March, but gave up 11.8% over the quarter. The S&P 500 Index gained 8.8% in March, but still closed 11% weaker for the quarter. The Dow Jones Industrial 30 Index lost 12.5% over the quarter, but gained 7.9% in March. The German Dax 30 Index lost 18.9%, the French Cac 40 Index ended 16.6% weaker and the Japanese Nikkei 225 Index dropped 16% over the quarter (all in US dollars). All markets generated strong positive returns in March.

Emerging markets did not retest their fourth quarter lows and continued their outperformance over developed markets. In US dollars, the MSCI Emerging Markets Index gained 1% over the quarter. Brazil (10.4%) and Russia (5.9%) performed strongly, while Turkey (-12.7%) and Korea (-4.3%) lagged the peer group over the first three months of the year. The MSCI South Africa Index gave up some of its recent outperformance to end the quarter 4% weaker (in US dollars).

Portfolio review
During the first quarter of 2009 the Investec World Wide Equity Feeder Fund performed broadly in line with the MSCI World Index in rand terms. The biggest contributors to performance during the quarter were Aeropostal and Petrofac. Aeropostal, a US-based clothing retailer, posted record results for the fourth quarter and 2008 fiscal year. Margins have held up well and the company has benefited from down trading, which has been a consistent theme throughout the current US recession. Petrofac is an engineering and construction company in the energy sector, focusing on the Middle East. The company recently signed a multi-year Algerian deal as well as a contract in Abu Dhabi which substantially improves its earnings visibility for the next few years.

The biggest detractor from performance was the US retail banking group Wells Fargo. The core capital base of this stock is relatively small and US Treasury Secretary Geithner's comments on 'stress testing balance sheets', set sentiment against the stock. We still believe Wells Fargo remains a good quality institution that should survive the crisis, although the risk of further capital raising remains.

Portfolio activity
Significant purchases
Valero has been added to the portfolio as we believe that this US refiner, which is in the process of restructuring its business, offers outstanding value at a price earnings ratio of four times this year's earnings and a steep discount to book value. Although refining margins have been under pressure, we believe some stabilisation and potential improvements will be forthcoming.
Embarq is a US telecoms company. It was purchased as the proposed merger with Century Tel creates an opportunity to improve profitability levels through exploiting synergies and cutting costs. The new group is highly cash generative and carries a high dividend yield, while valuation levels are very appealing.
Altria is part of the old Philip Morris group and sells tobacco products in the United States. It generates over US$4 billion of free cash flow a year - a cash flow yield of over 10%. Altria has a dividend yield of over 8% and a solid share buy-back program. The recent acquisition of UST (US Smokeless Tobacco) is expected to be earnings enhancing next year, with considerable cost synergy benefits.

Significant sales
Adobe Systems is a US software company specialising in documentation standardisation and creative production. Adobe's most recent results were disappointing and subsequent data suggests improvements to sales are not materialising.
Temenos produces software for the banking industry. The shares were sold following poor fourth quarter numbers that showed a fall-off in their order book. This drop has led to significant earnings downgrades for 2009.
Alliance Data Services is a US provider of credit card services. Trading is reasonable, and the valuation is fairly attractive. The balance sheet is a concern. Debt is rising, cash is falling and imminent sizeable debt repayments are due in the first half of this year.

Portfolio positioning
In an environment of high volatility and rapid swings in investor sentiment the temptation to move in and out of markets is extremely high. In our view this is rarely an effective investment strategy. We believe that a consistent focus on quality and value rather than on momentum usually pays off at such times. Despite the recent rally, quality and value abound at the present time. Investors are still very risk averse and are hoarding cash and less risky assets at a very high level relative to historical norms. In these circumstances signs of any underlying improvement in future corporate profitability can lead to a buying panic as investors race to build risk into their portfolios.

Examining corporate profit expectations we notice a general flattening of the downward trend that has been so strong and all encompassing over the past year. The upcoming earnings season is likely to prove particularly important. If the earnings picture improves, we could see a further extension of recent price gains as market participants become increasingly confident about the value case for global equity markets. A case that we believe will eventually be recognised to the benefit of long-term investors.

A disciplined investment process which is evidence based and consistently applied will be rewarded over time. Our focus on quality, valuation, earnings revisions and technical momentum will, we believe, deliver outperformance over the medium and longer term.

Market review
The crisis in the world's financial system reached a crescendo in September with the collapse of Lehman Brothers. Over the course of the final three months of the year, the effects of the turmoil in the financial sector were felt across all areas of the global economy. The world's major economies, including the US, UK, Japan and the euro zone are all experiencing significant declines in output and the severity of these recessions intensified during the fourth quarter.

Authorities in the US and UK took dramatic action in an attempt to stimulate their respective economies and to jump-start the flow of credit from banks to companies and households. At the start of the quarter, the federal funds target rate stood at 2%. After two cuts of 0.5% in October, the rate was reduced to between zero and 0.25% on 16 December, as the threat of deflation appeared on the horizon. The Bank of England cut rates from 5% at the beginning of October to just 2% by 4 December. The countries of the euro zone had appeared to be better placed to cope with a global slowdown, given their generally low levels of household and corporate debt. However, weak global demand in the fourth quarter has seriously affected European manufacturing and industrial output.

Many of the world's emerging economies continue to grow, but it is clear that they are not immune from the problems affecting developed economies. Exports to the West are one of the main drivers of growth in Asia and these have begun to suffer. Many emerging Asian economies are also employing substantial monetary and fiscal measures to support their economies.

Portfolio review
The Investec Worldwide Equity Feeder Fund had a difficult fourth quarter, but managed to outperform its benchmark, the MSCI World Index, in rand terms. Generally, the better quality companies with the most stable cash flows, such as the defensive consumer stocks outperformed. Cyclical stocks, whose earnings were most under threat from an economic downturn, continued to weaken. Stocks such as Wal-Mart and McDonalds outperformed. Despite being exposed to discretionary consumer spending, these companies are likely to benefit from down-trading by increasingly cost conscious consumers.

At a stock level the biggest contributors to performance were NTT DoCoMo and Chubb Corp. NTT DoCoMo, the Japanese telecoms services company, is benefiting from more rational competition in its domestic market, while returns have also been boosted by the strong yen. Chubb Corp, the property and casualty insurance company, is expected to benefit from any shrinkage in market underwriting capacity following the restructuring of AIG.

The two biggest detractors from performance were both financial stocks. National Bank of Greece was harshly de-rated, following investor concern about emerging market exposure. Although Credit Suisse Group remains one of the better managed global banking franchises, recent losses on its proprietary trading book have caused concern. However, at a sector level, banks made a positive contribution as we were underweight this underperforming sector.

Portfolio activity

Significant purchases
Unum is a leading provider of employee benefits in the US and UK. The company has done a good job diversifying its business and improving the risk profile of its investment portfolio. Overall returns are steadily improving.

Reed Elsevier (Dutch listing) has grown over a period of time to become the leading publisher of scientific and medical journals globally. This is a very stable business.

Daito Trust Construction is a residential construction company. The firm has good, stable cash flows, is wholly ungeared and is receiving positive earnings upgrades.

Raytheon manufactures defence and commercial electronic equipment. Compared to other defence companies, Raytheon is well diversified with extensive international exposure. Therefore, if defence budgets are cut under President Obama then earnings should prove more resilient than its peers.

Significant sales
Celanese manufactures specialist industrial plastics. It has been experiencing slowing sales in North America, Europe and more recently in Asia. The stock is now receiving sharp earnings downgrades.

Bank of New York was sold as it is suffering earnings downgrades in many parts of its business, including asset management and its stock lending operations. It also has a fairly large loan portfolio to the financial industry which is causing some concern.

OMV is an Austrian-based petroleum refiner. Despite falling input costs, end market demand for many of the company's products, such as naphtha, is collapsing. This is leaving earnings exposed to further downgrades.

BOC Hong Kong's recent results were poor. Margins fell as costs went up. There were also write-downs on its investment portfolios and it has subprime exposure. The stock is already starting to get earnings downgrades and we believe that there are more savage downgrades on the way. The valuation is stretched.

Portfolio positioning
With risk aversion continuing to be the defining feature of capital markets, it is becoming increasingly evident that investors can expect little or no reward from any strategy that offers a safe haven. Preservation of capital appears to be the best outcome that can be expected from investments such as US Treasuries. As a result, there are potentially extraordinary returns to be earned by investors prepared to accept some level of risk. Corporate bonds and equities offer unprecedented levels of value even on an extremely pessimistic economic outlook. High quality franchises are plentiful, but thus far investors remain too fearful to commit funds. It appears that governments are going to continue throwing money at the markets and at some point credit conditions will begin to meaningfully ease.

The problem for any potential investor is the timing of a more riskaccepting investment strategy. Momentum remains poor, despite the rally we have seen since mid November. It is important to remember that the market is likely to see the improvement in conditions first and that it has the tendency to rally sharply from its currently oversold position. Our focus remains on acquiring strong business franchises at historically low multiples. In the current market environment we have a unique opportunity to obtain these businesses at bargain basement prices. We will continue to concentrate on attractively valued companies, with good track records and an improving earnings outlook. This should pay dividends over the longer term.