Market review
Local equities performed well over the third quarter, adding 7.3% and returning 14.8% for the year to date. The resources sector continued to lag the overall market, despite slightly better returns (+2.9%) in the quarter. Platinum counters were the weakest amongst resources companies, losing 3.4% while paper stocks added 11.1%. Industrials (+10.5%) showed substantial variability amongst subsectors, with construction stocks losing 2.1%, while retailers (+10.1%), media (+18.7%), beverages (+11.4%) and mobile telecommunications (+15%) recorded double-digit growth. After a strong first half, banks (+1.9%) lagged the FTSE/JSE All Share Index in the quarter. Short-term insurers (+16.8%) and life insurers (+12.3%) saw strong gains over the period.

Portfolio review
In September, the South African equity market provided positive returns for the fourth consecutive month as equities continued to trend higher in response to the US Federal Reserve and European Central Bank interventions. The portfolio also delivered strong returns over the quarter. Factor performance continued to be largely driven by the 'risk-on/risk-off trade. During the first 2 months of the quarter, factors with a tilt towards low risk continued to outperform, but after the announcement of the latest round of quantitative easing, investors had a greater appetite for risk. This caused a reversal of factor returns. Factors based on momentum and earnings revisions provided their first negative month this year, while value factors outperformed. After trading range bound for most of the year, Old Mutual had a strong quarter. The group reported a decent set of results for the first half of 2012 in August. MMI Holdings also released better than expected operating results during the quarter and significantly outperformed the benchmark over this period. The overweight position in both these counters meant that on a sector level, the life insurance sector was the biggest contributor to portfolio performance this quarter. The portfolio also benefited from its underweight position in Standard Bank. The group reported poorer results than those that were expected and the underweight mining position protected the portfolio during the recent labour issues in this sector. Performance detractors during the quarter were the overweight holdings in Exxaro Resources and Barloworld, and the underweight exposure to Naspers and Shoprite.

Portfolio activity
Our optimal portfolio, which is based on expected returns, changes continuously as we receive new information and the market digests that information. The returns we expect to gain from trading to our optimal portfolio have to be offset by the transaction costs we incur. A pragmatic approach is to maintain a near optimal portfolio by trading periodically using a transaction cost model to ensure that we keep trading costs to a minimum. We typically rebalance the portfolio once a month, depending on the volatility of the market. Turnover at these rebalances is usually between 10% and 15%. During the quarter, we built a position in MMI Holdings, Aspen and Capital Property. At the same time, we added to our existing holdings in Coronation Fund Managers and British American Tobacco. We also reduced our positions in FirstRand and AVI and sold out of Astral and Steinhoff.

Portfolio positioning
The projected tracking error of the portfolio to the FTSE/JSE Shareholder Weighted All Share Index (SWIX ALSI) benchmark remains just over 3% and we keep the total portfolio risk below that of the market. On a sector level, bets are still moderate and we are overweight industrials and financials, funded by an underweight position in resources. The underweight position in resources is mostly due to our position in platinum and general mining counters, while we are overweight Sasol. As always, we aim to outperform the SWIX ALSI through an active stock selection process using proprietary quantitative techniques. We select stocks on a structured bottom-up basis, favouring companies with an improving earnings outlook at a reasonable valuation level. We are, however, aware of the uncertain macroeconomic environment and maintain a healthy weighting in more defensive factors. Looking forward, we are confident that our sophisticated quantitative stock selection methodology will continue to differentiate prospective winners from losers. We also believe that our disciplined portfolio construction, risk management and implementation skills will translate the opportunities to outperform into meaningful returns for the portfolio.

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 situation in Europe continued to be the driving force behind global market returns. However, with the newly formed Greek unity government respecting the existing bailout programme, the market gained some risk appetite in June and most indices clawed back the losses made earlier in the quarter. The FTSE/JSE All Share Index also ended the quarter in the black. The portfolio gave back some of its recent strong performance during the review period. Given the continued macro uncertainty, factor performance was heavily driven by the 'risk-on/risk-off' trade. Low risk factors outperformed and the market rewarded stocks with high earnings certainty. Value factors, particularly those based on forecasted earnings, which have been synonymous with the 'risk-on' trade, have performed poorly. The market remains momentum driven. Despite macro news being the main driver behind returns, investors are still rewarding company fundamentals. Stocks with upward earnings revisions have also outperformed consistently. The biggest contributor to performance this quarter was the overweight holding in Assore, which was the strongest performer of the South African listed diversified miners. This stock was trading at a significant discount to its peers at the beginning of the year; however, this gap has now closed and we have taken profits on the holding. Life Healthcare, which reported a very solid set of numbers in May, also benefited the portfolio. On a sector level, the biggest performance detractor this quarter was the portfolio's overweight exposure to the resource composite, which underperformed the broader market. Our holdings in ArcelorMittal, which had a poor quarter on the back of declining steel prices and weak first quarter results, and Sasol hurt performance. We also gave back some of the profits made in the first quarter of the year on our Vodacom and Exxaro holdings.

Portfolio activity
Our expected returns, and therefore our optimal portfolio, change continuously as new information arrives and the market digests that information. We must offset the transaction costs we incur with the returns we expect to gain from trading to achieve our optimal portfolio. A pragmatic approach is to maintain a near optimal portfolio by trading periodically using a transaction cost model, to ensure that trading costs are kept to a minimum. We typically rebalance the portfolio once a month, depending on the volatility of the market. Turnover when we rebalance is usually between 10% and 15%. During the quarter, we switched our Absa position into FirstRand and increased our weighting in Standard Bank at the expense of Nedbank. We also built our position in Imperial and Reunert and sold out of Growthpoint and Assore.

Portfolio positioning
The projected tracking error of the portfolio to the FTSE/JSE Shareholder Weighted All Share Index (SWIX ALSI) benchmark remains just over 3%, while the total portfolio risk is kept below that of the market. On a sector level, bets are moderate and we are overweight industrials, funded by an underweight position in resources and financials. As always, we aim to outperform the SWIX ALSI through an active bottom-up stock selection process, using proprietary quantitative techniques. We favour companies with an improving earnings outlook at a reasonable valuation level. We are, however, cognisant of the uncertain macroeconomic environment and maintain a healthy weighting in the more defensive factors. Looking forward, we are confident that our sophisticated quantitative stock selection methodology will continue to differentiate prospective winners from losers. Our disciplined portfolio construction, risk management and implementation skills should ensure that the alpha opportunities identified are translated into meaningful returns for the portfolio.

Market review
The first quarter of 2012 continued pretty much where the last quarter of 2011 left off - markets continued to rally despite a shaky global economy and muted global growth outlook. It seems the market has become conditioned to bad news. Even a reduction in the rate of negative news flow is enough to sustain the rally. To be fair, in the US at least economic data has been improving. Unemployment rates are falling, GDP is growing at the fastest rate since the second quarter of 2010 and consumer sentiment is improving. But the euro zone is facing a prolonged period of austerity and anaemic growth, if it is to avoid one or more of its members eventually defaulting. In China, the risk of a hard landing appears to have risen - residential property prices are falling, commodity inventory levels are rising and exports are slowing.

Fortunately, the South African economic outlook seems to be aligned with the US - GDP growth has been revised upwards, the inflation outlook has improved and the current account deficit has declined. Our equity market continued to rally, posting gains of 6% over the quarter. 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
We are pleased to report that the portfolio performed well again over the review period, outperforming the market (8%) as well as the peer aggregate. The biggest winner this quarter was Exxaro. The market received the announcement of their acquisition of iron ore exploration company African Ore very well. The stock price gained R30 to R200 in the month following the announcement. Our Vodacom position also contributed strongly to returns. In the fourth quarter of 2011, the company increased their customer base by a record five million. This pushed them past the fifty million customer milestone. Our position in Coronation Asset Management, and our underweight exposure to Anglo American also contributed to returns. Another contributor to performance was Old Mutual, in which we had an overweight position. Management acted on their stated strategy to unlock value by selling the Nordic business in December for £2.1 billion. This price was above analysts' fair value estimates and the share gained almost 20% over the following week. Being overweight AVI also paid off as the share rose steadily through the quarter. In December they put out a trading statement that headline earnings per share were expected to be up between 20% and 30%. Other noteworthy positive contributors to returns were our overweight position in Sasol and Kumba Iron Ore, and our underweight position in Naspers.

Portfolio activity
Our expected returns, and therefore our optimal portfolio, change continuously as new information arrives and the market digests that information. We must offset the transaction costs we incur with the returns we expect to gain from trading to achieve our optimal portfolio. A pragmatic approach is to maintain a near optimal portfolio by trading periodically using a transaction cost model to ensure that we keep trading costs to a minimum. We typically rebalance the portfolio once a month, depending on the volatility of the market. Turnover when we rebalance is usually between 10% and 15%. During the quarter, we added Growthpoint, British American Tobacco, Astral, Hyprop and Investec to the portfolio at the expense of Liberty and Impala Platinum. We switched our Anglo American position into BHP Billiton, took profits on AVI, trimmed our position in Old Mutual and upped our weighting in Coronation Asset Management.

Portfolio positioning
The projected tracking error of the portfolio relative to the FTSE/JSE SWIX All Share Index (SWIX) benchmark remains just over 3% while the total portfolio risk is below that of the market. On a sector level, we remain overweight resources and financials, funded by an underweight industrials position, although these positions have moderated. Our overweight resources positioning resides mainly in Sasol and the general mining sector (Exxaro and Assore).

As always, we aim to outperform the SWIX through an active bottom-up stock selection process, using proprietary quantitative techniques. We favour companies with an improving earnings outlook at a reasonable valuation level. Given the strong market performance over the last six months, it is no surprise that the 'analyst sentiment' and momentum factors have been the most successful recently. We are, however, cognisant of the uncertain macroeconomic environment and maintain a healthy weighting in the more defensive factors. Looking forward, we are confident that our sophisticated quantitative stock selection methodology will continue to differentiate prospective winners from potential losers. Our disciplined portfolio construction, risk management and implementation skills should ensure that the alpha opportunities identified are translated into meaningful returns for the portfolio.

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

We are pleased to report that the Investec Active Quants Fund enjoyed another strong quarter, outperforming its benchmark and earning a top quartile position against its General Equity peers. The strong performance over the last six months helped to restore our peer relative rankings to first quartile over one, three and five years.

The biggest contributor to performance was our overweight position in Old Mutual. Management acted on their stated strategy to unlock value by selling the Nordic business in December for £2.1 billion. This disposal price was above analysts' fair value estimates and the share gained almost 20% over the following week.

Our overweight position in AVI also paid off as the share rose steadily during the quarter. In December, the company put out a trading statement ahead of expectations, indicating that headline earnings per share from continuing operations would be between 20% and 30% higher. Other noteworthy positive contributors were our overweight position in Sasol and Kumba Iron Ore and underweight exposure to Naspers.
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Portfolio activity

Our expected returns, and therefore our optimal portfolio, change continuously as new information arrives and the market digests that information. The returns we expect to gain from trading to our optimal portfolio have to be offset by the transaction costs incurred. A pragmatic approach is to maintain a near optimal portfolio by trading periodically using a transaction cost model to ensure that trading costs are kept to a minimum. We typically rebalance the portfolio once a month, depending on the volatility of the market. Turnover at these rebalances is usually between 10% and 15%.

During the quarter, we added Assore, Impala Platinum, Coronation Fund Managers, Capitec, Emira and Foshini to the portfolio at the expense of Imperial, JSE Ltd, Resilient, and Remgro. We switched FirstRand into Absa, took profits on our Steinhoff position and added to our Old Mutual holding.

Portfolio positioning

The projected tracking error of the portfolio to the SWIX benchmark remains just over 3% while the total portfolio risk and beta of the portfolio is below that of the market. On a sector level, bets are now quite large. The portfolio is overweight resources and financials, funded by an underweight position in industrials. Within financials, we remain underweight banks offset by an overweight position in the life assurance sector (Old Mutual). Our overweight resources position resides mainly in Sasol and the general mining sector (Exxaro and Assore).

As always, we aim to outperform the FTSE/JSE SWIX All Share Index through an active bottom-up stock selection process, using proprietary quantitative techniques. We favour companies with an improving earnings outlook at a reasonable valuation level. Given the strong market performance in the fourth quarter, it is no surprise that analyst sentiment and momentum factors have been the most successful recently. We are, however, cognisant of the uncertain macroeconomic environment and maintain a healthy weighting in the more defensive factors.

Looking forward, we are confident that our sophisticated quantitative stock selection methodology will continue to differentiate prospective winners from losers. Our disciplined portfolio construction, risk management and implementation skills should ensure that the alpha opportunities identified are translated into meaningful returns for your portfolio.