Market review
During the quarter, low interest rates and further quantitative easing continued to support financial assets. Low nominal cash yields have drawn investors into riskier asset classes. Emerging market equities, along with commodity prices and emerging market currencies, were the clear winners. The MSCI Emerging Markets Index rose 18.2% in US dollars over the quarter while the MSCI World Index gained 13.9%. Zinc, copper and aluminium ended more than 20% higher, outperforming a substantially weaker US dollar. Gold breached the $1300 mark, to gain 5.4% over the quarter and 19.4% year to date. Platinum and Brent crude both returned 8% in the past three months. Ten-year US Treasuries strengthened, with yields ending the quarter below 2.5%.

Portfolio review
The Investec Worldwide Equity Feeder Fund outperformed its benchmark in rand terms over the third quarter of 2010. Good stock selection in the financial and services super sectors contributed to the performance. Amongst financial stocks, it helped having a greater focus on banks operating in faster growing economies, but without the leverage and capital issues of their developed market counterparts. In speciality & other finance, better-than-expected earnings from IG Group and Assured Guaranty benefited the portfolio. In the services sector, priceline.com and Wyndham Worldwide, two travel and holiday related stocks, performed well while increased advertising spend pushed CBS and ProSieben higher.

Generic and drugs pipeline issues once again negatively affected sentiment in the pharmaceuticals sector, detracting from performance. Exposure to several US general retailers, which were hit by rising input costs and softer end markets, also detracted from returns. The portfolio remains overweight household goods & textiles. We own a number of high quality names, operating in growth markets outside the US. The portfolio is underweight electricity; European and Japanese stocks look expensive and are likely to be affected by low prices.

Portfolio positioning
Global net debt to equity levels are extremely low relative to history (excluding financials) and large cash balances are building in some sectors, most notably technology. It therefore seems reasonable that investors have stepped up the pressure for cash to be returned.

Free cash flow yields of public companies almost match those of high-yield bonds and exceed the yield level on investment-grade bonds by around a third. Meanwhile, the spread between the dividend yield of the S&P 500 Index and US treasuries is at one of its highest levels since the Second World War. It seems perverse that the yield on high quality, large capitalisation companies should exceed the income levels available on low quality, low liquidity fixed income instruments.

The mounting cry of 'use it or lose it' aimed at management is likely to have a few effects. Most prominently, aside from the higher level of payout, is an increase in the marginal propensity to acquire. It seems that investors are prepared to reward companies for moving assets into higher returning, though more risky, enterprises and away from low returning cash. With the pressure mounting to do something with surplus cash and no acquisition penalty, it seems highly probable that merger and acquisition activity will gather momentum.
As greater confidence in cash returns appears to be growing, the question is whether the 'risk-on/risk-off' phenomenon that has characterised global equity markets this year can be replaced by a more trended market. We believe that this is possible; however, the aftershocks of the 2008 market dislocation may not yet have completely dissipated.

The second quarter of 2010 reminded investors and market commentators that excess global indebtedness which had resulted in the global financial crises was not likely to be resolved in a few short months or by some extraordinary policy miracle. The spotlight remained firmly focused on Europe, with certain countries in the region straining under the heavy burden of sustainable funding requirements.

Global share markets headed lower as uncertainty rose around the likelihood of a V-shaped economic recovery. The MSCI World Index dropped sharply, closing 12.5% down over the quarter, dragging this year's returns into negative territory (-9.6%). Emerging markets fared somewhat better, shedding 8.3% over the quarter and 6% year to date. (All returns are quoted in US dollars).

Market review
World markets returned to being positive again in February, despite ongoing concerns over sovereign debt and some mixed statistics in respect of global growth prospects. Greece dominated the headlines during February. There were concerns over the country's ability to convince the markets of the efficacy of its deficit reduction plan, challenging the propensity of investors to commit funds for the necessary debt refinancing. Rumours abound of a rescue package from either the EU or the IMF, with the ramifications of a failure to find the necessary funds having severe implications for other indebted, large deficit nations such as Spain, Portugal, Italy and Ireland. At the same time political uncertainty in the United Kingdom has brought the country into focus as another potentially debt distressed candidate. By being outside of the euro, the UK currency has seen some significant downward pressure. Worries over debt have also engendered concerns over the potential consequences of the necessary deficit reduction plans currently being shaped. Social unrest has grown as trade unions have mobilised to defend any potential threat to their members' living standards and as a result we have seen strikes in France, Germany and Greece with every prospect of further disruptions in the spring. Despite all the doom-laden headlines, progress in the broader global economy appears to be on track. The pace of the recovery remains moderate and as yet insufficient to provide job creation, but strong enough to continue to drive the very slow tightening cycle we have seen in the Far East and Australia. In February this was extended to the US where the Federal Reserve raised its discount rate by twenty five basis points to 0.75%. The fourth quarter earnings season has seen a relatively positive outlook begin to emerge. The majority of companies have again beaten profit expectations and for the first time in several years we have also seen the corporate sector surpassing revenue expectations by a significant amount. This should bode well for job creation with potentially positive implications for the credit cycle, which has seen a steady but relatively minor improvement in delinquencies for the year to date. The improvement in delinquencies has not yet fed through to diminish the overall level of write-downs. Volatility continues to decline and the market has begun to respond to positive revisions by securities analysts. It would appear that the 'normalisation' process continues apace as the world recovers from the global credit crunch and its consequences.

Portfolio review
The Worldwide Equity Feeder Fund underperformed the MSCI World Index in rand terms over the month. Performance in February came predominantly from stock-picking as the fund benefited from good results most notably in the consumer and services sectors. In consumers Nestle, Church & Dwight and Herbalife all posted good results. Given that such quality stocks had been left behind in 2009, a combination of good value and improving operating performance ensured that they performed well during the month. In services, our focus on companies that are exposed to the US consumer may seem at odds with the current macroeconomic headwinds. However, we are focused on quality players with strong balance sheets, differentiated products and which are gaining market share. Companies with these attributes such as Deckers, Fossil and Gap all saw improved trading. Investors remain sceptical though with Gap still trading on 12 times 2011 earnings with plans to buy back 7% of the company. Financials detracted materially from performance over the month. In banks, our investment in BBVA fared poorly as concerns over sovereign debt hit not just Greece but also Portugal, Spain and Ireland, the so-called PIGS. High unemployment and the fallout of a long construction boom will negatively impact Spain. However, we should also remember that Spanish banking regulation was amongst the most effective in the world both before and during the credit crunch as banks were allowed to provision anti-cyclically. This ensured relatively strong balance sheets and capital ratios, which is still the case today. We therefore maintain our position in both BBVA and other European banks where valuations look very attractive in any recovery scenario.

Portfolio activity
Significant purchases
TDK manufactures a broad range of electronics components such as magnetic tapes, power supplies, inductors, and semiconductors. The company has gone through some restructuring and the last results demonstrated progress as all divisions returned to positive year-on year growth. TDK's valuation looks very reasonable and the company has strong operating leverage.
Significant sales
Dell reported a mixed set of results. Although revenues were better than anticipated, gross margins were disappointing. The main area of weakness came from its consumer division. We trimmed the stock given the slightly uncertain outlook, but we do feel the valuation case remains strong.

Portfolio positioning
Market observers are uncertain as to the future direction of global growth trends. Therefore, it seems appropriate to focus on evidence as opposed to the hyperbole surrounding current events on both the political and macroeconomic forecasting arenas. Firstly, the overall quality of the global corporate sector has improved. Corporations have cut costs and free cash flow generation is strong, while overall debt levels are low relative to history. The banking sector has been largely re-capitalised (albeit through tax payers as well as savers) and overall common equity levels in the system are higher than at any previous time. Furthermore, value is still apparent Although the deep value discount which drove market leadership from the cyclical, indebted and smaller side of the market has now been eradicated, overall valuation levels, as measured by most matrices, appear subdued. Finally, corporate operating performance has been strong relative to expectations. With the return of top-line growth, the prospects of an increase in capital expenditure and employment have improved. It seems probable that in a normalising environment the returns for corporations that are executing well should be rewarded. Momentum does remain positive despite some recent volatility. The world's equity markets have not seen a flood of money driven by risk appetite as this has so far been the preserve of the higher yield, fixed income asset class. At the same time corporate activity has, as yet, remained muted as corporations have guarded their cash. We would anticipate a return to historical levels as industry becomes more confident as to the advent of more 'normal' capital market conditions. In this context it is our opinion that a focused, evidence-based, investment process should drive relative returns going forward.

Market review
2009 marked the end of the recession and provided asset markets with ample opportunity to retrace some of the losses sustained in the wake of the worst global financial and economic crises in decades. Along with commodities and the corporate credit markets, emerging economies were the prime beneficiaries of improving global growth prospects, the strong recovery in risk appetite, the weak US dollar and low borrowing costs across the developed markets. Emerging market equities rose 8.6% over the last quarter and 79% in 2009, well ahead of developed markets. The MSCI World Index returned 4.2% over the quarter to push the year's gains to 30.8%. All returns are quoted in US dollars.

Portfolio review
The Worldwide Equity Feeder Fund outperformed the MSCI World Index in rand terms over the fourth quarter of 2009. The best performing sectors for the portfolio over the review period came from a variety of super sectors. Performance benefited from good stock picking within the leisure entertainment & hotels sector, with Priceline.com and Wyndham Worldwide Corp adding value against the benchmark. Another notable positive contributor was the engineering & machinery sector, with Aggreko and FLSmidth & Co performing well. The three worst performing stocks within the portfolio, National Bank of Greece, Bank of America Corp and Credit Suisse Group, fell within the banks sector, although the contribution of the sector as a whole was largely flat. General retailers also performed weakly over the quarter, with Aeropostale in particular performing poorly.

Portfolio positioning
Entering 2010, we believe the world's equity markets are in a reasonable condition. Functionality in the credit markets has returned and the raising of equity in both the primary and secondary markets has gathered momentum, further enhancing the general strength of corporate balance sheets. Money has now begun the next stage in the transition from cash to bonds and is moving strongly to equities as risk appetite continues to grow. This is as a result of greater confidence and the paucity of alternative income-producing assets. In our view, this process is likely to continue through 2010, although government support for capital markets may be gradually withdrawn and the funding markets would then have to function without it. We are also concerned about the extent of the legislative wave that is approaching the financial sector and how the balance between capital adequacy and the provision of finance to the corporate and consumer sectors will be achieved. In 2009 deep value was rewarded, but in 2010 clear value opportunities are likely to be significantly less prevalent (with perhaps the exception of the financial sector). Therefore, we look to 2010 as the year when those corporations that succeed in delivering an enhanced operating performance at a time of muted, but positive economic performance may be rewarded by the investment community. We would also anticipate a stronger focus on quality as institutional money flows to equities. Quality companies have been broadly neglected, as buyers have looked for cyclical exposure rather than size and strength and this group appears good value relative to its history. In this context, we expect further progress for markets in the medium term, but anticipate a more broadly based leadership where quality is added to the mix of value and momentum factors.