World markets rallied strongly over the quarter driven largely by improving signs of a sustained global recovery and increased investor risk appetite. Over the quarter, the S&P 500 index was up 15%, the FTSE 100 index was up 20.8% while emerging market indices were even stronger in dollar terms (MSCI EMF was up 20.1%).

Commodity prices in general ended the quarter in positive territory, with base and precious metals in particular, having a strong quarter. After a strong rally in the oil price in the previous quarter, oil retreated slightly to end the quarter down 5%. On the currency front, the rand continued to strengthen against the dollar and closed the quarter at R7.51 to the dollar, 3% stronger than its June-09 closing level. In line with global markets, the FTSE/JSE All Share index continued its positive momentum and closed up 13.3% over the quarter. The local market was particularly strong in the early half of the quarter (In July and August the market was up 10.3% and 2.9% respectively) but lost momentum towards the end of the quarter as resource stocks came under pressure. For the quarter, Industrials were up 16.3% and Financials were up 15.6%, while resources shares lagged the overall market (up 11.1%). These strong gains were achieved despite a weak domestic economic environment.

Over the quarter the fund performed in line with its benchmark and continues to closely track the FTSE/JSE Top 40 index. All index changes that occurred during the quarter were timeously acted upon so as to minimise the relative risk in the fund.

Portfolio manager
Aslam Dalvi

Despite generally poor economic data over the quarter, some early signs of stabilisation saw markets rally strongly in the second quarter of the year. The MSCI World index ended the quarter up 21% in dollar terms, while the MSCI World Emerging Market index closed the quarter up 34.8%. Increasing risk appetite globally saw the more cyclical sectors outperform, while the more defensive sectors lagged the overall market.

Commodity prices in general ended the quarter in positive territory with base metals and oil in particular having a strong quarter. The oil price closed the quarter at 69.90 dollars per barrel, 41% higher than its previous quarter's closing level. On the currency front, the rand continued to strengthen against the dollar and closed the quarter at R7.70 to the dollar, 23% stronger than its March-09 closing level.

In line with global markets, the FTSE/JSE All Share index gained 8.3% over the quarter. The local market was particularly strong in the early half of the quarter (in May and June the market was up 10.3% and 1.4% respectively) but lost momentum towards the end of the quarter as concerns re-surfaced that the recovery in the SA economy would be slower than originally anticipated.

Industrials and Financials were the top performing sectors and closed the quarter up 14.0% and 12.3% respectively. Despite stronger commodity prices, Resources delivered a lacklustre performance (up 2.8% over the quarter) as the rand strength weighed heavily on the index. On a stock level, the Gold counters were the worst performers over the quarter as reflected by the Gold index which declined by 16.2% over the quarter. The top performing stocks over the quarter were Telkom (up 81%), Old Mutual (up 45%) and Anglo American (up 40%).

The FTSE/JSE Top 40 index ended the quarter up 7.7%, marginally underperforming the FTSE/JSE All Share index. On a net of fee basis, the fund marginally underperformed its benchmark, the FTSE/JSE Top 40 index over the quarter.

Portfolio manager
Aslam Dalvi

The first quarter of 2009 has not provided investors with any respite from the volatility in equity markets experienced during 2008.

Global markets ended the quarter in negative territory with the MSCI World index closing down 11% for the quarter. Continued risk aversion and recessionary concerns were key themes over the quarter and continued to weigh on global markets.

Following on from a weak performance across the developed markets, the local bourse also had a difficult quarter with the FTSE/JSE All share index closing down 4.2%. Considerable intermonth volatility was also experienced locally with the market dropping significantly in early March and then recovering strongly towards the end of the quarter.

Across the major sectors, Resources was the best performing sector while both Financials and Industrials underperformed. The FTSE/JSE Resources index ended the quarter up 1.6%, rebounding marginally after a weak performance in the previous quarter (the index closed the Dec-08 quarter down 13%). Amid growth concerns, the FTSE/JSE Industrial and FTSE/JSE Financial indices closed the quarter down 9.2% and 7.0% respectively.

Over the quarter the fund marginally underperformed (net of fees) its benchmark, the FTSE/JSE Top 40 index. This marginal underperformance is largely due to the fee and trading costs incurred over the period.

Global equity markets were very weak in the fourth quarter, with the S&P 500 experiencing its largest quarterly drop over the period. On the back of deteriorating global economic fundamentals, the S&P 500 ended the quarter down 22.4%, while the MSCI World Index lost 21.7% in dollar terms.

Emerging markets also performed poorly over the quarter with markets such as Russia (down 51%), Turkey (down 37%) and Brazil (down 37%) coming under significant pressure.

A weakening global economy and faltering end-user demand saw commodity prices, in general, end the quarter down. Apart from gold, which was up 0.9% over the quarter, base metals (copper down 55%, vanadium down 52% and steel down 36%) and oil (down 62%) were aggressively sold down.

In South Africa, the FTSE/JSE Top 40 index closed the quarter down 10%, largely driven by a weak performance across Resources and Financials.

On the back of weaker commodity prices, the FTSE/JSE Resources index closed the quarter down 12.9%. The industrials metals sector was the worst performing sector, declining by a massive 45%, while the gold (up 22%) and coal sectors (up 35%) delivered a solid performance.

Local Financials also experienced a difficult quarter, with the FTSE/JSE Financial index losing 11%. Within Financials, the insurance and real estate sectors were the worst performing sectors, losing 16% and 14.7% respectively.

The FTSE/JSE Industrial index closed the quarter down 4.1%, assisted by good performances from the more defensive food retailer and healthcare sectors, which were up 16.2% and 5.6% respectively over the quarter.

On a net of fee basis, the Fund performed in line with its benchmark, the FTSE/JSE Top 40 index, over the quarter.

Aslam Dalvi
Portfolio Manager