At home and abroad, 2016 was characterised by a number of black-swan-type events. On the domestic front, the ill-fated quarter-end cabinet reshuffle has now delivered a junk status credit downgrade and, with that, untold little black swans. Our deplorable domestic politics aside, the engines for global growth continue to turn. The US economy, despite lingering scepticism of President Trump's ability to implement his highly anticipated tax reforms, continues to grow at a healthy pace. China..s guidance for growth of 6.5% - 7% for 2017 has also been well received. A sanguine outlook has buoyed commodity prices and emerging market currencies from their 2016 lows. The rand, the 3rd best performing emerging market currency, appreciated by 10% against the US dollar over the last 12 months. Similarly, notwithstanding domestic political turmoil, the Russian rouble and the Brazilian real rebounded by 20% and 14% respectively.

Despite a worsening domestic economic outlook and continuing political uncertainty, the rand strengthened in the first quarter of the year. Widespread speculation of a cabinet reshuffle and its final fulfilment on the 30th of March has reversed much of these gains. This much-maligned move compounds South Africa's political and socio-economic difficulties. The unpleasant status quo is expected to last longer, with economic growth hovering precariously close to zero and governmental infighting spilling into the public domain.
Although uncertainty increases the difficulty of decision making, the ambiguity of potential outcomes works to create opportunities for investment in high-quality, well-managed companies at attractive valuations. Although our fund..s performance continues to languish under rand strength, we believe that our high rand-hedge exposure remains prudent given the large number of domestic political risks. There is much doom, gloom and naysaying. Fears circulate that South Africa..s prospects are deteriorating rapidly. The current uncertainty has, however, created opportunities to acquire well-managed South African companies at attractive prices. Whilst equity returns can be tumultuous at times, we believe that equities, South African and elsewhere, will remain one of the true wealth generating asset classes. We are confident that the companies in our portfolio will deliver outperformance over the longer term. As always, we are constantly aware of the responsibility that we have to manage your savings (and ours) as best we can. We thank you for your continued support and trust in the Rootstock promise.

Equity-centric funds thus drove returns over the quarter, particularly offshore equity strategies (especially emerging markets). Among the equity-focussed funds, those with lower exposure to banks would have outperformed. Over one year, more conservative flexible income strategies tended to outperform.

The local political events towards the end of the quarter were certainly concerning and the consequences thereof are likely to affect our markets further in the coming months. While investors have reason to feel concerned with the future of our nation we believe that through investing in a diversified mix of assets and fund managers one can navigate through the uncertainty. Staying the course and not reacting to news flow is paramount to preserving and creating wealth and we continue to monitor markets closely to understand the investment environment locally and abroad.