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. Against this backdrop global markets delivered a mixed performance for the quarter with US markets outperforming while European and Emerging markets were generally weaker. In dollar terms, the S&P 500 closed the quarter up 4.9%, the FTSE 100 closed down 4.1% while the MSCI emerging market index closed the quarter down 4.4%. US markets delivered a strong performance for the year with the S&P 500 closing up 13.7%. For 2014, the FTSE 100 was down 5.2% in dollar terms while the MSCI emerging market index closed down 1.8%.

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 as lower commodity prices reduced earnings of our local resource counters. 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.

The fund underperformed its benchmark over the quarter, driven by costs incurred from flows and significant index changes that necessitated trading. On a gross basis, the fund continues to closely track its benchmark, the FTSE/JSE Top 40 Index, which was marginally up (+0.01%) this quarter and 9.17% for the year.

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 this year.

World markets generally had a good quarter in dollar terms with the MSCI World Index ending the quarter up 2.5%. The S&P 500 (+1%), Nikkei (+11%), DAX (+8%) and CAC (+5%) continued their recent momentum and ended the quarter higher. Emerging markets were generally stronger, with the exception of Brazil and Turkey where currency and macro pressures saw these markets post a 14.9% and 15.8% decline over the quarter.

Commodity prices remained weak with deteriorating demand/supply fundamentals and a stronger dollar leading to further price pressure across key commodities. Global resource sectors were under pressure as we saw further declines in oil (down 10.7%), most base metals and precious metals (down mid to high single digits). The rand weakened by 4.6% against the dollar providing some small offset for our resource counters against weakening commodity prices.

In line with global markets, 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 fund marginally underperformed its benchmark over the quarter, driven by costs incurred from flows and significant index changes that necessitated trading. On a gross basis, the fund continues to closely track its benchmark, the FTSE/JSE Top 40 Index, which was marginally up 5.7% this quarter.