The fund ended a difficult year with a disappointing total return of -2.8%, with -1.0% achieved in the final quarter. Overall the 2015 calendar year was a very difficult one as key positioning in certain sectors (PGM mining) and small and mid-cap shares went unrewarded.

Economic and market overview
Six years after the world economy emerged from its broadest and deepest post-war recession, a return to robust and synchronized global expansion remains elusive. Within advanced economies, aggressive fiscal and monetary stimulus measures have underpinned generally accelerating output and falling unemployment, although deflationary pressures remain.

Financial market volatility increased in August, following the depreciation of the renminbi and an increase in global risk aversion as a result of a marked slowdown in Chinese economic growth. Temporary surges in volatility had earlier been associated with events surrounding Greek debt negotiations.

Capital flows to emerging markets have slowed in recent quarters, and the lift-off of US policy rates from the zero lower bound is likely to be associated with some tightening of external financial conditions. And, while the growth slowdown in China is thus far in line with forecasts, its cross-border repercussions appear greater than previously envisaged, especially for commodity-export economies.

The balance of risks is still tilted to the downside. Lower oil and other commodity prices could provide some upside to demand by commodity importers, but complicate the outlook for commodity exporters, some of which already face strained fiscal/balance sheet conditions. The Chinese authorities face difficult trade-offs in their objectives of achieving a transition to more consumption-driven growth without activity slowing too much, while also reducing financial vulnerabilities and implementing reforms to strengthen the role of market forces in the economy.

Commodity exporters have seen sharp depreciations of their currencies, but a general trend of reduced financial inflows to emerging markets has resulted in more generalised depreciation against the US dollar, euro and yen. These exchange rate changes should be associated with growing net exports for the depreciating countries, a development that is part of the natural adjustment process to differential growth rates that flexible exchange rates promote. Increased financial market volatility can pose financial stability challenges in advanced economies (for instance, if accompanied by a sudden decompression of risk premiums), with substantial spill-overs onto emerging markets, including through tighter financial conditions and a reversal of capital flows.

Locally, the SA economy remains vulnerable to portfolio inflows slowing and perhaps reversing, given the high current account and fiscal deficits. The rand depreciated by 25.2% vs the US dollar in 2015 and rand weakness was exacerbated further by domestic policy concerns, power shortages, drought and current account and budget deficits weighing on SA's credit ratings.

The ALBI returned -6.4% for the quarter, reflecting the significant rise in the 10-year benchmark yield. The rise in yields reflect investors' concern over contagion risk within SA, given the observed political quandaries and imminent foreign currency rating downgrades. Inflation-linkers delivered 1.3%, while cash (STeFI) delivered 1.6%.

The general expectation is that the SARB will effect a hike of 25bp in early 2016. The repercussions of the weakening currency are yet to reveal themselves fully due to the lags associated with foreign exchange pass-throughs. The risks to the relatively benign inflation readings recorded thus far are therefore materially skewed to the upside.

The best performing segments of the market - most of which are structurally related to the depreciating currency - have been rand hedges; including paper, beverages, tobacco and household goods.

The generally lower commodity price environment meant that, unsurprisingly, the worst performing sectors were from amongst industrial metals, platinum mining and construction.

Fund performance and positioning
Key contributors this quarter were Naspers, Aquarius platinum and New Europe Property Investments, while Standard Bank, MTN and Anglo American detracted. Positive contributions from the fund's foreign picks came from Samsung, Esure and Buwog. We are employing significant equity hedging in the fund via put option strategies. This enables us to benefit from our stock-picking ideas, without taking too much equity market risk.
Our longer-dated bond exposure is balanced by shorter duration corporate bonds with strong credit quality. Overall we are underweight bond exposure, with the key concern being the prospect weakness if there are significant foreign investor outflows. Our duration positioning is neutral however.

Mondi is one of our top holdings and has added significant value to our clients' portfolios over the past years. Mondi is an international packaging and paper group with a dual listed company structure (primary listing on the JSE for Mondi Limited and premium listing on the London Stock Exchange for Mondi plc).
Mondi is fully integrated across the packaging and paper value chain - from managing forests and producing pulp, paper and compound plastics, to developing effective and innovative industrial and consumer packaging solutions. Their innovative technologies and products can be found in a variety of applications including hygiene components, stand-up pouches, cement bags, creative retail boxes and office paper.
Mondi's ability to deliver strongly across the cycle is testament to the quality of the business. Their success is based on investing in their high-quality, low-cost asset base, driving sustainable operational improvements, developing in markets that offer growth opportunities, and working with their customers to find attractive solutions. Combined with a strong balance sheet and sustainable free cash flow generation, makes Mondi an extremely resilient organisation, and one in which we have every reason to be confident of value accretion going forward.
The fund retains an allocation to foreign equities and listed property stocks, where we find opportunity in certain large technology stocks, healthcare companies, direct motor insurers and specific listed property exposures.

The market dislocation experienced in December 2015 around the recall and subsequent replacement of the Finance Minister resulted in a substantial re-pricing in financial companies. We have used the volatility to increase positions in high-quality shares such as FirstRand at low prices.

The recent disappointing performance is not reflective of the fund's potential or long term track record. The fund is positioned in a diversified collection of attractive and undervalued securities. While we cannot say when the performance trajectory will inflect, we are continue to apply our valuation-driven investment philosophy with discipline and expect substantially improved performance in the months and years to come.

We remain positioned with a contrarian orientation, aiming to exploit the extreme valuation differentials on offer as a result of global monetary authorities' unconventional interventions in capital markets, and the concomitant rise of price-agnostic market participants. Our view is that extremely low bond-yields globally are causing global investors to over-price companies with stable cashflows (perceived as bond substitutes) and under-price companies with naturally variable or cyclical cashflows, when these cashflows are at cyclically low levels.

The fund returned 3.9% for the first quarter of 2016. This represents a substantial improvement from recent disappointing performance represents a good start in regaining lost ground.

The fund benefited from strong performance in some of our highest conviction ideas and benefited from the opportunities presented in the volatility of the prior December.

The fund has returned 10.1% p.a. since inception in 2011, ahead of both cash and inflation.

Economic and market overview

The quarter had a turbulent start, with a substantial sell-off in January and February followed by a large rally in March.

Of note and concern was increasing evidence that negative interest rate policies pursued by the ECB and the Bank of Japan appear to be failing, with the respective currencies strengthening (in Japan's case very substantially) and stock markets falling.

After December's US rate hike, the first in almost 10 years, market expectations of further 2016 US rate hikes faded in response to slightly weaker economic data. The US dollar weakened as a result.

Rating agencies S&P and Moody's have placed SA sovereign ratings on review due to continuing risks to South Africa's medium-term growth prospects and the lack of progress on growth-enabling reforms. A foreign currency rating downgrade to below investment grade rating is likely sometime this year (and appears to be largely priced in). While less likely, a downgrade of the local currency rating to sub-investment grade would be far more serious and is likely to lead to South Africa's exclusion from key global government bond indices with the risk of substantial capital repatriation on the part of foreign bond investors and associated currency weakness.

The rand strengthened 4.7% against the US dollar over the quarter from extremely low levels reached during December's Finance Minister crisis.

Local equity markets gained 3.9% in the first quarter driven primarily by resources stocks. Industrial metals stocks (+93.1%), gold stocks (+92.8%) and platinum stocks (+74.6%), stood out as particularly strong.

Unsurprisingly, rand-sensitive global sectors, including personal goods (-12.6%), forestry & paper (-6.6%) and beverages (- 4.5%) were among the weakest sectors.

Fund performance and positioning

Key contributors this quarter were Amplats, FirstRand and Standard Bank while Metair, Adcorp and Sun International detracted.

Bonds started the year with strength, with the ALBI returning 6.6% for the quarter Inflation-linkers delivered 2.1%, while cash (STeFI) delivered 1.7%.

The fund benefited from the additional bonds added in mid-December. Currently, the longer-dated bond exposure is balanced by shorter duration corporate bonds with strong credit quality. Valuations remain attractive with yields at healthy spreads above expected inflation. Despite this we have less bonds than we could have, with the key concern being the potential for weakness if there are significant bond selling by foreigners on the back of a local currency downgrade below investment grade and subsequent exclusion from bond indices. We are keeping some powder dry for any dislocations in the months to come.

Foreign stock selection was disappointing this quarter, with notable detractors being US packaging firm Westrock, Old Mutual Asset Management, and Brookdale Senior Living. Contributors to performance were fashion retailer Michael Kors, US hospital group HCA holdings and energy pipeline firm, Kinder Morgan.

We are employing significant equity hedging in the fund via put option strategies. This enables us to benefit from our stock-picking ideas, without taking too much equity market risk and without needing to hold any low-yielding cash

African Rainbow Minerals (ARM has rebounded strongly after substantial weakness last year. ARM extracts and beneficiates iron ore, manganese ore, chrome ore, platinum group metals, copper, nickel and coal. ARM also has an investment in gold mining through its shareholding in Harmony.

ARM's assets are well positioned on global cost curves and the group features a strong balance sheet, providing flexibility for surviving the current depressed commodity price environment. The company is well-positioned to take advantage of inexpensive asset sales in the current distressed resources environment and is well-positioned for the expected normalisation in commodity prices. It is the premier empowerment partner for large, global miners such as Glencore and Vale, which is an additional strength for deal-making in the South African mining industry context.

The fund retains an allocation to foreign equities and listed property stocks, where we find opportunity in certain large technology stocks, healthcare companies, property and casualty insurers and specific listed property exposures.

The fund is positioned in undervalued shares with excellent prospects for superior returns. While the external environment is continually shifting we continue to apply our process and valuation-driven philosophy with focus and discipline, keeping a vigilant eye out for mispriced opportunities.

The fund returned 2.7% for the second quarter of 2016. The fund benefited from strong performance in some of our highest conviction ideas and benefited from the opportunities presented in the volatility of the prior December. The fund has returned 10.1% pa since inception in 2011, ahead of both cash and inflation.

Economic and market overview

On the global front, the unexpected "leave" outcome of the UK referendum on EU membership caused significant market turbulence towards the end of the quarter. The actual effects will only be known after a period of complex and prolonged exit negotiations. There will likely be negative growth implications for the UK and Europe and a smaller impact on the rest of the world.

In the aftermath of the UK referendum there was a flight to safety, with increases in gold, safe haven currencies (US dollar, yen, Swiss franc) and developed market bonds. We continue to believe that asset prices are generally high, which makes markets vulnerable to stress events and normal cyclical economic slowdowns.

The US economy continues to strengthen, despite weak data in May. Market expectations for rate hikes have been pushed out further this quarter (at most one further hike expected at the end of the year), seemingly because of the weak global economy and the Brexit vote. The European economy continues to stagnate, despite huge central bank stimulus.

Emerging markets are also weak, but are showing signs that the worst is behind them. India continues to show strength, China benefited from a new dose of stimulus, while Russia and Brazil remain very weak.

In South Africa, the first quarter GDP growth rate (year on year contraction of 0.6%) was particularly disappointing. Mining and agriculture (10% of GDP) was down 10%, while manufacturing and construction (20% of GDP) was down 1%. It is particularly concerning that the very weak rand seems to have very little beneficial impact on the production side of the economy. The tertiary sector (70% of the economy) is still serving as the powerhouse of our economy and only managed to grow by 1%. This trade and services part of the economy is, however, coming under increasing cyclical pressure with rapidly slowing consumer spending growth and a deteriorating credit cycle.

The local equity market gained 0.4% over the quarter. After a prolonged period of significant weakness, we have now had two successive quarters of resource sector outperformance (up 6.4% this quarter). The platinum sector held on to significant gains from the previous quarter and outperformed the market (up 5.1%), with a moderately stronger rand platinum price (up 2.8%).

Financials (down 4.3%) underperformed, with UK-exposed firms particularly hard hit (Investec and Capital and Counties were down 17%). A flat performance from industrials (up 0.5%) masks significant stock divergence. Notable strong performers included Tongaat Hulett (up 13.1%) and Telkom (up 20.1% on good results). The retailers were weak (Shoprite, Woolworths and Truworths were down between 4% and 13%) as deteriorating local economic prospects were absorbed into their high ratings. A notable exception was Mr Price (up 18.7%) on resilient results. Amongst the industrial heavyweights: Naspers (up 8.6%), MTN (up 5.7%), and British American Tobacco (up 9.1%) showed solid performances, whilst SABMiller (down 5.5%) and Richemont (down 13%) lagged.

Bonds outperformed equities (ALBI was up 4.4%), as well as cash (up 1.8%) this quarter. The bond rally since the dramatically oversold levels of December 2015 (up 10.3%) has been substantial, but has not been as a result of economic improvements or waning idiosyncratic risk. South Africa's economic risks remain high, given weak growth, high unemployment and a worsening fiscus.

Fund performance and positioning

Key stock contributors this quarter were Naspers, Equites and Tongaat Hulett. FirstRand, Old Mutual and Capco detracted.

We reduced bond exposure profitably during the quarter, as strong foreign appetite for local bonds compressed yields. Capital was deployed into shorter duration deposits which are now offering attractive risk-adjusted yields. Our remaining longer-dated bond exposure is balanced by shorter duration corporate bonds with strong credit quality, where valuations remain attractive with yields at healthy spreads above expected inflation. The fund's exposure to preference shares was a positive contributor this quarter.

Foreign stock selection was mixed this quarter, with notable detractors being UK healthcare group, Spire, UK property company, Hammerson, and Dutch electric technology company, Philips. Contributors to performance were Japanese multinational internet corporation, Softbank, American corrugated packaging company, Westrock, and the Austrian/German residential property landlord, Buwog. Post the UK referendum we have purchased a basket of attractively valued high quality European financials, particularly insurers.

On the local side, specialist industrial property fund, Equites Property Fund, has been a strong performer over the quarter in our funds. Logistical excellence has become vital for industrial corporates in South Africa, particularly in the very competitive consumer facing sectors. This has caused a structural need for well-located and optimally designed distribution centres. Equites Property Fund has built a competitive advantage in designing, financing, building and managing these specialist properties and is very well positioned to benefit from these structural trends. The share provides our clients with a solid revenue stream from a well-diversified mix of tenants, which are mainly large multinationals and JSE-listed corporates. There is also future growth expected from development projects, brownfield expansions (the current Foschini Group distribution centre expansion) as well as partnering opportunities with other general property funds.

We continue to apply our process and valuation-driven philosophy with focus and discipline, currently positioning the fund very differently to the market and competing funds. We are maintaining a conservative positioning, with substantial equity hedging in place, maximum offshore exposure, defensive precious metal ETF holdings and low duration yield asset exposure. The performance year to date has been very encouraging and market volatility and geopolitical events are creating exciting opportunities to position our funds in significantly undervalued shares with strong prospects for superior returns.

The fund returned a very strong 4.7% for the third quarter of 2016, benefiting from strong performance from some of our highest conviction equity ideas, successful hedging activity, and our exposure to cash, preference shares and bonds. Very strong stock foreign stock selection more than offset the effects of stronger currency and contributed to outperformance. The fund has returned 10.3% pa since inception in 2002.

Economic backdrop

Developed economies continue to gradually improve, but growth remains subpar and inflation stubbornly low. In the US, rising employment, albeit with low wage growth, continues to benefit consumer expenditure and the energy sector is stabilising after a deep contraction. The US Federal Reserve is likely to increase interest rates again soon, with recent deferrals seemingly due to economic fragility outside of the US. European and Japanese growth is anaemic, with little credit growth, despite the backdrop of record monetary stimulus.

In China, significant fiscal stimulus has been propping up fixed asset investment and supporting GDP growth. Incrementally less profitable public projects are being undertaken and we are concerned that this inefficient growth path is not sustainable and is accompanied by rapidly increasing debt to GDP ratio. Additionally, the housing market in China, which has been in a strong upswing recently (benefiting heavy industries like cement and steel), is showing signs of a cyclical slowdown. This backdrop is negative for bulk commodity demand.

Within emerging markets, India and Indonesia are benefiting from pro-growth fiscal reforms, while Russia and Brazil are rebounding from deep recessions. The commodity price rebound, a key positive factor for many emerging markets this year, remains vulnerable to a potential Chinese investment slowdown. This quarter, the global search for yield resulted in very strong emerging market bond and equity inflows.

In South Africa, the economy remains very weak, with agriculture and mining sectors contracting of late and consumer expenditure weak. The rand is particularly important for financial markets at present, as it has strengthened this year from very weak levels, tempering inflation expectations and improving the interest rate outlook. The exchange rate remains very sensitive to political developments around moves against National Treasury and their justified focus on reducing corrupt and inappropriate state expenditure. Politically powerful vested interests are set to lose out materially if National Treasury is successful here and we expect the fight back could be strong.

Ratings agencies have placed the SA sovereign ratings on a negative outlook, with a possibility of a foreign currency downgrade below investment grade due to tepid medium-term growth prospects, a lack of progress on growth-enabling reforms, a weakening fiscal position and heightened potential threats to (currently highly regarded) state institutions. The S&P rating decision in December will be particularly closely watched and a downgrade would be negative for the rand and interest rate expectations.

Market review

Extreme unconventional monetary stimulus in the form of asset purchases continues to distort asset prices across the globe. Bond yields are near record lows and in many cases negative. Equity prices are high, especially in sectors where stable cashflows are generated, such as consumer staples.

Over the quarter, global equity markets were generally up, with particular strength from the Nasdaq index in the US, the German market and Hong Kong stocks. The local equity market gained 0.3% over the quarter, underperforming other emerging markets. After a prolonged period of weakness, we have now had three successive quarters of resource sector outperformance (up 8.1% this quarter and 36% year to date). The platinum sector was the star performer (up 22.6% this quarter and 125% year to date), outperforming gold (down 10%) and general mining (up 16.7%). Commodity prices in dollar terms were generally flat this quarter, consolidating gains in the year to date, but base metals (up over 10%) and sugar (up 13%) were particularly strong.

Industrials (down 2%) underperformed this quarter and cyclical retail shares were particularly weak: Truworths (down 15%) and Mr Price (down 26%), as these highly-rated shares have begun to disappoint on earnings growth. The healthcare sector was also weak (down 7%). Heavyweight industrials Steinhoff (down 6.8%) and British American Tobacco (down 5.1%) underperformed in line with the stronger rand, while MTN (down 16.2%) continued to be dragged lower by operational underperformance and a weaker Nigerian currency. On the positive side, Famous Brands (up 32.1%), AECI (up 26.7%), Bidvest (up 18.3%) and Tsogo Sun (up 17.1%) were strong.

Financials (up 0.8%) outperformed, (with banks up strongly - Nedbank up 22.5%, Standard Bank up 12.8%, FirstRand up 5.9% and Barclays up 8%), while insurers lagged (Old Mutual and Discovery were down 5% and 7.8% respectively although Sanlam bucked the trend and was up 5.7%).

Bonds (up 3.4%) and cash (up 1.9%) outperformed equities this quarter but the bond market was characterised by material inter-quarter volatility following political moves to undermine the work of National Treasury. Since the dramatically oversold levels of December 2015, the bond rally has been substantial (up 20.8%), due partly to the dramatic fall in developed market bond yields and the search for yield in emerging markets.

Fund performance and positioning

Strong contributors this quarter were AECI, Datatec, Royal Bafokeng Platinum as well as our global holdings (strong global stock selection more than outweighed the effects of the significantly stronger rand). Key detractors were Old Mutual, African Rainbow Minerals and Tiso Blackstar Group.

Foreign stock selection was very positive this quarter. A particularly strong contributor was the UK-listed life insurer, Prudential. Despite the vast majority of its earnings coming from outside the UK, including from an exciting growth portfolio in Asia, the share was severely down on the Brexit news, creating an attractive buying opportunity. Other contributors to performance were US pipeline owner, Kinder Morgan, chemical producer, Westlake, and Softbank (materially exposed to Chinese e-commerce company Alibaba).

On the local side, mining explosive and chemical manufacturer, AECI, has been a strong performer over the quarter in our funds. The company is one of the few remaining South African manufacturers with world-class intellectual property and globally competitive products. It is using this position to expand outside of South Africa, particularly in Africa, Indonesia and Australia. In addition to world class explosives technologies, the company has leading water purification solutions, agricultural chemicals and food additive products - all focused on attractive growth markets. AECI has a strong balance sheet, generates good cashflows and has many large growth opportunities.

Against a backdrop of weak economic growth, high asset prices, rising political uncertainty (anti-establishment populism) in many large countries and a potentially disruptive Chinese economic rebalancing, we are cautious on the outlook for financial markets.

We continue to position the fund in investment opportunities we identify from deep research and analysis, taking a long-term perspective to identify mispricings. We have a high exposure to mid-cap stocks where we see undervaluation, a large positions in the low cost PGM miners and certain PGM ETFs and very high exposure to global stock picks.

After offering value post the political events of December 2015, resurgent foreign appetite for local bonds has now compressed their yields back down to fair value. We currently see more attractive risk-adjusted yields in shorter-duration deposits. The fund remains very defensively positioned with hedging against South African equity exposure, and high levels of cash exposure. We have added moderately to our foreign equity exposure.

Protector - September 2015

The Protector Fund returned -3.6% for the quarter. Over on year to end September 2015, the fund delivered 0.4%. Sharp weakness in some of the fund's key domestic stock picks has resulted in disappointing recent performance. This is expected to strongly reverse in the year ahead.

The fund is positioned to achieve its objectives of inflation-beating returns with a high degree of focus on capital preservation at this time.

Economic and market overview
Broad emerging market economic weakness is now evident, with China's unexpected slowdown feeding through to many other emerging market countries via reduced demand for the commodities that they export. Commodity prices were sharply lower over the quarter, contributing further to deflationary forces across the globe. Commodity producing country currencies, including the rand, were sharply lower.

Developed economies continue to show reasonable economic progress, with unemployment continuing to fall, but inflationary forces proving very elusive. The US, in particular, is growing well and showing labour market and housing market strength.

The large economy central banks continued to maintain accommodative policies, with near zero interest rates and ongoing quantitative easing in Europe and Japan. The US Fed postponed its expected September rate hike, ostensibly reacting to financial market weakness emanating from China's slowdown.

The South African economy continues to weaken due to the large commodity exposure, but also due to structural problems such as power constraints, labour market rigidities and socioeconomic disparities.

The SA market declined by 2.1% over the quarter, led by resources (-17.9%), as commodity prices fell sharply. Winners were particularly the large global companies, notably SABMiller (+25.8%), British American Tobacco (+17.6%), Steinhoff (+10.3%) and Richemont (+10.7%). SABMiller rose in the run up to the cash offer from AB Inbev, which was subsequently accepted in principle by the SABMiller board. The rand fell (-12.1%) over the quarter against the US dollar, assisting many of these global stocks.

Commodity companies were particularly weak, with sharp price falls in iron ore and platinum producers. Certain industrial companies, such as Massmart (-26.7%), Nampak (-23.6%) and Mr Price (-23.0%) also sharply reversed from very elevated levels, given the sluggish economy.

The ALBI was up 1.1% for the quarter, less than inflation-linkers (1.3%), while cash (STeFI) delivered 1.6%. Over the quarter, SA yields increased, with the 10-year benchmark yield increasing by 17bps over the quarter to 8.4%, given the emerging market risk aversion.

Our longer-dated bond exposure is balanced by shorter duration corporate bonds with strong credit quality. Overall we are underweight bond exposure, with the key concern being the prospect weakness if there are significant foreign investor outflows given the high foreign ownership. Our duration positioning is neutral however.

The SARB kept rates on hold at 6% for the time being, given the very weak economy, benign inflation outlook and accommodative global conditions, but remains on a gradual "policy normalization" path. However, the weakening currency and its implications for inflation are a particular cause for concern.

Fund performance and positioning
Weak resources stocks and MTN were the key detractors for this quarter. Lonmin, African Rainbow Minerals, Anglo American and Impala Platinum were the worst performers. Mondi was again a key performance contributor, along with Pick n Pay, Capital and Counties, the palladium ETF and Advtech.

The fund's offshore assets performed well for the quarter, with German residential property name Buwog continuing to contribute positively.

Standard Bank is one of our larger holdings and is a leading pan-African bank, with an extensive presence in 20 countries across sub-Saharan Africa. Strong growth in sub-Saharan Africa over the last decade has increased the number of bankable businesses and households, as well as levels of household income. Despite the weak commodity environment, this momentum is likely to continue and with less developed financial markets in the rest of Africa, there is far higher growth potential than in South Africa.

Over the past few years, the group has embarked on a comprehensive programme to develop a robust new IT architecture. This has depressed recent earnings and has prepared the group for better service to clients in the years ahead. We believe with the African growth potential and the IT project coming to an end, the group is well positioned to deliver superior ROEs and growth rates in earnings into the future and that this performance will be sustained over the longer term.

We remain positioned with a contrarian orientation, aiming to exploit the extreme valuation differentials on offer as a result of global monetary authorities' unconventional interventions in capital markets. Our view is that extremely low bond yields globally are causing global investors to over-price companies with stable cashflows (perceived as bond substitutes) and under-price companies with naturally variable or cyclical cashflows, when these cashflows are low.

We also hold a relatively high midcap exposure in undervalued industrial companies that seem to have escaped the strong rerating that has occurred in many of the larger industrial SA companies with strong global investor shareholdings - possibly due to their size causing them not to make the radar screens of large active global investors and the benchmarks of global passive investors.

Platinum group metal prices have significantly surprised us over the last quarter, falling substantially and placing the bulk of SA platinum miners in a negative cashflow situation. This particularly threatens miners, such as Lonmin, that have no alternative sources of cash from low cost operations and which do not have ready access to financing at this time. Consolidation within the industry, project deferrals and capacity closures have begun as a result. We continue to find significant value in the platinum miners as their share prices reflect a lower trajectory of spot metal prices than we believe is realistic, given prospective fundamental market deficits that we expect. Our analysis suggests that platinum group metal demand will continue to grow from autocatalyst fabrication, jewellery (especially in China and India) and other industrial applications. Recycling supply should peak in the next 3 years and mining supply, which is heavily concentrated in SA, remains extremely constrained by underinvestment by mining companies who need to preserve cash at a time when large parts of the industry are currently making a loss.

We are employing significant equity hedging in the fund via put option strategies. This enables us to benefit from our stock-picking ideas, without taking too much equity market risk and without needing to hold any low-yielding cash

The fund retains a high allocation to foreign equities and listed property stocks, where we find opportunity in certain large technology stocks, healthcare companies, property and casualty insurers and specific listed property exposures.

The fund returned 0.6% for the quarter and 3.8% over the one-year period to 30 June 2015. Sharp weakness in some of the fund's key domestic stock picks and commodity ETF holdings has resulted in the one-year performance dipping below the fund's CPI+5% objective. The fund's has now returned 10.7% since inception, 5.1% ahead of inflation.

Economic and market overview
While global growth dipped in the first half of 2015, it is set to make a modest comeback over the remainder of the year, partly due to the reversal of several temporary factors that depressed economic activity in the US. The Chinese government's efforts to stimulate their economy and reasonably strong economic momentum in Europe and Japan should also lift growth. Still, a persistent shortfall in aggregate demand remains the defining feature of the global economic landscape.

The eyes of the world remain on US monetary policy and the timing of the first rate hike. Far more important is the pacing and extent of the hiking cycle, and we expect slow and shallow in this regard.

The Chinese economy continued to slow in the first half of the year, as reflected in various 'real-time' measures such as railcar freight volumes, electricity output, bank lending and slowing demand for commodities. The shift from capital investment to consumption continues.

Despite a dovish FOMC, the rand fell 0.3% over the quarter against the USD, as markets priced in short-term risks from Greece and medium-term risk from rising US rates. The FOMC commentary suggested that the trajectory of interest rate rises might be less steep than had originally been anticipated.

Locally, following weaker global bond markets, the ALBI was down 1.4% for the quarter, marginally worse than inflation-linkers (-1.3%), while cash (STeFI) delivered 1.6%. The fund retains a relatively neutral positioning in bonds, with value in longer-dated exposure balanced by shorter duration corporate bonds with strong credit quality.

The SARB kept rates on hold at 5.75% as lower oil prices and weaker US data allowed the SARB some latitude. However, the extent of deterioration in the inflation outlook, recent rand weakness and high dependence on foreign capital flows leave the SARB with little room to delay rate increases. This was confirmed by the intensification in the SARB's hawkish rhetoric, signalling the continuation of the tightening cycle. An interest rate hike of 25bps in the third quarter of this year is likely.

The FTSE/JSE All Share Index touched a record peak in April, before entering a more volatile period for the remainder of the quarter as negotiations between Greece and their European creditors broke down. The All Share Index ultimately ended the quarter 0.2% down (ie largely unchanged).

SA sector winners included Support Services (+11.7%), General Financials (+11.5%), Mobile Telecoms (+11.0%), Forestry and Paper (+10.3%), and Specialty Chemicals (+10.0%). Unsurprisingly, sector laggards included Resources exposed stocks with gold miners (-16.8%), Industrial Metals (-13.7%), Platinum (-8.1%) and Construction (-8.3%) sectors hurt by falling commodity prices. Fixed Telecoms (-19.0%) were also out of favour as investor scepticism around Telkom's transformation heightened.
Fund performance and positioning
A generally weak resources sector and a weak spot platinum pricing environment once again led to share price attrition in the platinum sector. Selected platinum names were key absolute detractors for us. Mondi and several of our mid-cap ideas such as Advtech, Metair and KAP, were the fund's top performing holdings over the quarter on an absolute basis. The fund's investment in the London property developer, Capital & Counties Properties also contributed to performance this quarter.

The fund has a large exposure to the Zambezi Platinum Preference share, which despite its name, carries very little platinum risk due to supportive guarantees by large institutional investors. The instrument has a 10-year maturity and earns a 12.75% return, which is set to float upwards with the likely possibility of SARB rates hikes later this year.

The fund's offshore assets performed well, particularly Esure (a UK internet and telephone-based insurance company), as well as several global healthcare names such UnitedHealth, NMC health and HCA holdings.

Adcorp was founded in 1975 as the country's first recruitment advertising agency and has transformed into the largest workforce management player on the African continent. It has delivered excellent value for our clients, being one of several compelling mid-cap ideas in our portfolios yet to receive wider market attention. The Group offers workforce management, training and business process outsourcing services and solutions across a vast spectrum of industry sectors and job types with a specific focus on emerging markets and, in particular, Africa and the Asia-Pacific region. Spanning three continents and a strategic alliance with global player Randstad, the Group has an increasing global presence. Adcorp has an impressive record of creating value for its shareholders, converting a high proportion of its profits into cash, paying dividends, adhering to the highest standards of corporate governance and providing quality service to its clients through operational excellence, innovative product offerings and service solutions. We are confident that this business offers excellent long-term prospects at very reasonably valuation multiples, which we believe will translate into attractive returns to clients invested in our portfolios.

The domestic market once more remains heavily influenced by global markets, central bank activity and the resultant portfolio flows. Markets have started 2015 in a volatile fashion, which we believe is likely to set the tone for the year ahead.

We hold a relatively high mid-cap exposure in undervalued industrial companies that seem to have escaped the strong rerating that has occurred in many of the larger industrial SA companies with strong global investor shareholdings - possibly due to their size causing them not to make the radar screens of large active global investors and the benchmarks of global passive investors.

Platinum group metal (PGM) prices have continued to be very weak and platinum mining share prices have plumbed new depths, currently discounting weak prospective metal prices. We continue to find significant value in the platinum miners as their share prices reflect a lower trajectory of metal prices than we believe is realistic, given prospective fundamental market deficits that we expect. Our analysis suggests that PGM demand will continue to grow from autocatalyst fabrication, jewellery (especially in China and India) and other industrial applications. Recycling supply should peak in the next three years and mining supply, which is heavily concentrated in SA, remains extremely constrained by underinvestment by mining companies who need to preserve cash at a time when large parts of the industry are loss making.

We are employing significant equity hedging in the fund via put option strategies. This enables us to benefit from our stock-picking ideas, without taking too much equity market risk and without needing to hold any low-yielding cash.

The fund retains a healthy exposure to foreign assets, where we find opportunity in certain large technology stocks, healthcare companies, property and casualty insurers and specific listed property exposures. We are favouring companies with strong intellectual property and consequent high margins. At a time of very high global asset prices, we are adopting a very contrarian positioning with the intention of delivering strong positive returns in potentially downward moving markets.

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