As before we continue to believe that the economic outlook for domestic South Africa is favourable. This remains our view over the longer term given a structural shift to a lower inflation and a lower interest rate environment. The oil price has in the mean time become a potential threat to the view. Together with the exchange rate, the oil price remains a critical macro variable. The impact of a higher oil price cannot be ignored, but for now we expect that while inflation will pick up, it will not get out of hand and will stay within the target range i.e. at structurally lower than historic levels. The main risks remain the volatility of the Rand, the potential of inflation pressure and interest rate hikes with the biggest source of these risks originating from outside South Africa.

During the quarter the fund maintained the weighting in listed property at 62%. The fund has had a pleasing performance year to date on the back a strong performance of the listed property. We will continue to hold a high weighting in listed property as we believe that it still offers value.

The economic outlook for South Africa remains favourable, given the structural shift to a low inflation, and therefore low interest rate, environment. This bodes well for South African consumers and their spending prospects. We maintain our view that there is scope for real short rates to reduce further over time. This is already happening because inflation is currently in an upward trend, which means real short rates are in a downward trend (as long as nominal short rates remain unchanged).

We believe that inflation will average less than 5% p.a. over the next 10 years and that there is more scope for real rates to reduce. We therefore remain bullish on the long-term prospects for South African bonds. Short term, we are more cautious. This is because we, and most other market participants, expect inflation to increase steadily for the next 6 to 9 months, and we don't expect an interest rate cut this year.

Global economic activity has re-accelerated following a slowdown in the middle of last year. Activity outside the US also appears to have picked up, albeit more recently. The rebound in global demand has put renewed upward pressure on goods prices.

During the quarter the fund was a net buyer of property and increased it's holding to 51% of the fund. Major purchases included SA Retail, Sycom, Redefine and Marprop. Holdings in Ambit were reduced. Although the returns on property are expected to be lower than last year it will still be a good relative performance.

During the quarter the fund had a return of 7.7%, well ahead of its benchmark. The listed property component had a return of 20.1%, outperforming the Real Estate index return of 14.9%. The money market investments showed a 1.9% return for the period. The weighting in listed property increased to 39%, with money market reducing to 61%.

The fund was a buyer of Growthpoint, Martprop and Redefine. There were no sales for the period. The listed property shares still offer value and their weighting in the portfolio will be increased.