The fund returned 2.6% for the quarter, ahead of its benchmark by 1.4%. Over one year, the fund delivered 9.6%, which is substantially ahead of its cash benchmark. The fund continues to provide positive returns ahead of cash with a high degree of focus on capital preservation.

Economic and market overview
A plummeting oil price was the standout feature during the last quarter of 2014, and it triggered large price moves in the relative winners (oil consumers and importers) and losers (oil producers and exporters). Spot Brent crude oil was down 49.7% for the year, having reached a high of US$115 per barrel in June, before falling to a four-year low of US$55.8 at year end. Since oil is the largest commodity traded by value, its price decline is particularly important for the world economy. The cause of the decline was increased production from North America at a time of weak demand from Europe and China and growing use of substitutes (natural gas and renewables), with OPEC making no change to their production intentions. The growth deceleration in China, the world's largest non-oil commodity consumer, came as 2014 saw an increase in supply of many of the commodities it imports. The result was large commodity price falls, with iron ore almost halving and thermal coal down 22%. Precious metals were little changed in 2014 off already low levels as supply was curtailed. The local economy is beginning to recover after prolonged strikes in 2014, but growth is expected to remain sluggish. Lower fuel prices are likely to outweigh the effect of the weaker rand on inflation, giving some purchasing-power relief. The rand depreciated by 9.3% against the US dollar in 2014 as we saw SA's worst economic performance since 2009, the beginning of power shortages that are likely to continue into 2015 and current account and budget deficits weighing on SA's credit ratings. Despite disappointing economic performance, the SA equity market returned 10.9% in 2014 (21.4% in 2013). Financials were the top performing sector, with a total return of 27.3%, followed by Industrials (+16.8%). Resources lagged, declining by 14.7% for the year. Similarly, for the fourth quarter, Financials (+10.8%) and Industrials (+7%) showed strong outperformance, while Resources (-19.3%) posted its worst quarterly performance since the 2008 market crash. Bonds and cash outperformed local equities during the quarter. The SARB kept rates steady at the November MPC meeting and, with inflation expected to decline significantly in 2015 and growth likely to be weak, rate hikes are unlikely in 2015. This is a significant change from our expectations last quarter and makes cash a particularly unattractive asset in the medium term. Foreign capital flight remains a key risk to the exchange rate and elevated SA equity valuations. In general, large emerging markets have seen foreign outflows in 2014, particularly Brazil and Russia. In contrast, SA experienced cumulative inflows, particularly into Industrials and Financials.

Fund performance and positioning
Given the continued weakness in the platinum sector, Lonmin, Anglo Platinum and Aquarius Platinum detracted from performance this quarter. Tongaat and AECI were the fund's top performing holdings over the period. The fund's exposure to certain real estate counters (notably New Europe Property, the rapidly growing Romanian property company) once again contributed to performance. The fund's offshore assets performed well, particularly German residential property company, Deutsche Annington; US hospital group, HCA; and US health insurer, United Health. Sasol has been a key holding for several years. Its core business is to produce synthetic liquid fuels and chemicals based on its proprietary coal to liquids and gas to liquids technology. Sasol uses in-house Fischer-Tropsch technology to convert coal and gas into a synthetic crude oil and wax, which are in turn refined into petrol, diesel and various chemical feedstocks. The rand/dollar exchange rate and the dollar price of oil are the most important determinants of Sasol's earnings. The oil price plunge will therefore severely reduce Sasol's near-term cashflows, despite an ambitious cost cutting programme that was under way even before the oil price decline. We believe that OPEC's reluctance to cut supply in the face of much lower oil prices marks a structural change in oil market dynamics. OPEC is handing over the job of being the marginal producer that balances the market. The higher cost producers, especially the new shale oil players in North America, will be taking over this role, having been able to expand production in recent years with little impact on oil prices. There will be considerable fallout as this market change occurs, and we believe the oil price will settle at a new, lower level in future and will exhibit more volatility than it has in recent years. Sasol is therefore worth less than we had previously thought and we have sold all of the Sasol shares in the fund. The SA market 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. Broadly, we have been reducing concentration in the fund by selling down some of the outperformers and are finding significantly more opportunities in mid-cap companies relative to the larger stocks. We continue to hold large weights in the platinum and palladium ETFs, given the tightened supply situation with the SA platinum miners in the face of gradually increasing global demand for the metals. 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 too much low-yielding cash. We continue to hold a broad spread of yield instruments, taking advantage of credit spreads while carefully diversifying credit risk. The fund retains close to maximum allocation to foreign assets, where we are finding value in certain large technology stocks, healthcare companies, automakers, property and casualty insurers and specific listed property exposures. We favour companies with strong intellectual property and consequent high margins.

The fund returned 0.8% for the quarter. Over one year to end March 2015, the fund delivered 8.0%, which is again substantially ahead of its cash benchmark. The fund continues to provide positive returns ahead of cash with a high degree of focus on capital preservation.

Economic and market overview
Since the financial crisis of 2008-2009, the developed world's central banks have generally maintained near-zero interest rates and have undertaken significant unconventional monetary easing in the form of quantitative easing. In 2015, the US Federal Reserve and the Bank of England delayed the onset of expected monetary tightening in response to tepid economic growth and falling inflation. In addition, the ECB launched its long-awaited sovereign quantitative easing programme in January and the Bank of Japan continues with its substantial quantitative easing program. Together, this has amounted to monetary stimulus in excess of prior expectations and as a result, asset prices have been very buoyant so far this year. In particular, high quality South African Industrials and Financials have been bought up to very high price levels as they find favour with investors looking for the stable and (sometimes) growing cash flows they have exhibited over the last few years. While earnings yields are very low relative to history, investors seem to be focused on their 'relatively high' earnings yields when compared to the very low bond yields on offer in developed markets.

South African GDP growth expectations have been materially marked down, influenced by continued electricity supply issues, expected labour disruptions, lower commodity prices and lower business confidence. Higher income consumers remain very strong, boosted by strong financial markets.

Inflation has troughed in the quarter and is likely to head higher and breach the upper end of the SARB's target band in the coming year due to higher petrol, food and electricity prices. For now, the uncertainties related to US policy normalisation and weak domestic growth momentum has prompted the SARB to keep rates on hold at 5.75% at both the January and March MPC meetings. However, they were explicit that the deteriorating inflation outlook had narrowed the scope for a pause in monetary policy normalisation since January and their tone has shifted from neutral (January) to more hawkish (March) on potential rate hikes.

The FTSE/JSE All Share Index touched a record peak in February, before entering a choppier period for the remainder of the first quarter, ultimately delivering a total return of 5.8%. Financials and Industrials were the best performing sectors, delivering 11.2% and 5.6% respectively, while Resources, plagued once more by weakness in platinum and energy names, were down 0.2%. The rand depreciated by 4.6% against the US dollar in the first quarter.

The ALBI delivered a solid 3% total return over the quarter, outperforming both inflation-linked bonds and cash. Our view is that the long end of the curve is offering the most value with yields at the shorter end having already priced in rate hikes. More specifically, looking at the FRA curve, the market is pricing in hikes of more than 1% over the next 18 months, which is more than we expect.
Fund performance and positioning
With continued weakness in the platinum sector, Lonmin, Anglo Platinum and Aquarius Platinum were again the primary sources of performance detraction in the quarter. Platinum group metal (PGM) prices have continued to be very weak and platinum mining share prices have plumbed new depths, currently discounting very little upside to spot metal prices. We maintain the view that demand for PGMs will grow steadily in the years ahead and supply will be very constrained. This is a recipe for much higher metal prices, which are currently depressed by the continued liquidation of above ground stocks by commodity investors who seem to be reacting to macroeconomic developments rather than longer-term metal market fundamentals. When metal prices inevitably move higher, the PGM miners should react very strongly as they become significant cash flow producers again.

Naspers, Standard Bank and Mondi were the fund's top performing holdings over the period. In addition, the fund's exposure to certain real estate counters, such as Hospitality Property B and New Europe Property, contributed to performance once more. The fund's offshore assets performed well, particularly Smurfit Kappa (Europe's leading corrugated packaging company), Westlake Chemical (global supplier of petrochemicals, plastics and building products) and US health insurer, UnitedHealth.

Capital & Counties plc. (Capco) has been a star performer in our funds since we added exposure in 2014. This real estate development company gives investors exposure to two key assets in central London - Covent Garden and Earls Court. London is a vibrant, growing global city, with strong economic prospects, an affluent population and a shortage of centrally located residential accommodation. At Covent Garden, Capco's focus continues to be on further upgrading the premium area by attracting new luxury retail brands and upmarket leisure offerings to the area. This upgrading is gaining momentum, resulting in strong rental growth, which we believe has a lot further to go. In Earls Court, Capco has a unique opportunity to provide thousands of new homes in a centrally located area with great transport links, bordering on Kensington, Mayfair, Chelsea and Fulham. Lillie Square, the first opportunity to bring new residential product to the Earls Court Masterplan area, was successfully launched in 2014 and established a very positive pricing benchmark for the area as it sold out in a very short time. Capco's balance sheet is strong and flexible, strengthened over the year with their new bank facilities, a US private placement and the successful equity raise in 2014. Capco's strategy is clear and focused and with two unique assets in prime central London. They are well positioned to deliver long-term value for our clients.

The SA market remains heavily influenced by global markets, central bank activity and the foreign 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 continue to find value and opportunities in the mid-cap space. Master Drilling and Clover are two such smaller company holdings, which offer our clients strong return prospects. 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 close to maximum allocation to foreign assets, where we find opportunity in certain large technology stocks, healthcare companies, automakers, 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 contrarian positioning with the intention of delivering positive returns in potentially downward moving markets.