The Simplisiti Managed Protector Fund of Funds will change it's name to Simplisiti MET Managed Protector Fund of Funds, effective from 10 December 2012

Investors would be forgiven for feeling a bit queasy, as markets switched to "risk on" mode following Q2's pull back. Policymakers hogged the limelight, spewing a familiar cocktail as medication to slowing GDP growth. ECB president Mario Draghi kick started the dosage, stating that they would do "whatever it takes", embracing an open-ended policy of "Outright Monetary Transactions" followed by the Fed announcing their much anticipated QE3-albeit this time with no limitation . As a curtain finale, Japan announced an expansion in its QE program by $126bn. Risk assets rallied with the MSCI World posting 6.8%(USD), led by the US(6.4%) and Europe(8.8% USD) . Emerging markets rallied 7.0%(USD) whilst locally the ALSI posted 7.3%(ZAR) led higher by Industrials (11.8%) and Financials(5.3%), with Resources up 3.0%.

The absolute portfolios managed to outperform the benchmark by a significant margin over the 3rd quarter of 2012. This can be predominantly attributed to the holding in Inflation linked bonds, which was one of the best performing domestic asset class. The value-biased equity strategies befitted from the equity market rally as well, with the fixed interest absolute return strategies also keeping up some of the price movement in the fixed interest over the quarter. The small cash position in the portfolio also contributed positively to performance as inflation had been somewhat muted over the quarter.

SMMI's base case view is that excessive global liquidity coupled with extremely low interest rates and high risk premiums on risk assets will trump weak economic growth as long as the latter does not deteriorate into recession (the reflation trade). Although growth is slowing, emerging markets have greater flexibility in terms of both fiscal and monetary policy to stimulate growth than their developed market counterparts. Against this backdrop of slowing growth and the risks associated with the US's fiscal cliff and the ongoing Eurozone debt crisis, equity market valuations are still attractive in both absolute and relative terms with margin-of-safety valuations supporting an overweight bias in global equities biased towards developed markets in the near term and emerging markets in the longer term.

While we still expect a volatile environment going forward, we maintain that one needs to have exposure to riskier strategies. We expect the equity centric managers' to well should the equity market continue to rally. The current fixed interest absolute return manager is quite conservatively positioned and we are currently investigating the inclusion of another fixed interest absolute return manager into the absolute return portfolios in order to capture to upside experienced in the fixed interest market. We are mindful of the risks to the global economy as well as the domestic upheavals and we have not utilized the entire risk budget afforded to us.

Global equity markets sold off on renewed concerns on the European debt crisis as Greek election results provided no clear cut majority driving the electorate back to the polls with Greece's future participation in the European monetary union at stake. Markets were dealt another blow as Spanish banks came under liquidity pressure with the Spanish government poised to request bailout funding. The MSCI World shed 9.0% USD), the main detractors being Europe (-12.0%) and Japan (-9.0%) whilst emerging markets suffered similarly (-11.7% USD) in light of the risk off trade. Local equity markets were not spared as the JSE fell 3.6% (ZAR) led lower by Resources and Industrials. The Rand fell 8.6% (ZAR) as emerging market currencies came under pressure in the ensuing risk off contagion.

Against this backdrop, the absolute portfolios struggled to outperform in the risk-off environment, with the equity-centric managers being the worst performing managers, attributed to the large equity exposure in the strategy. RE:CM Flexible equity was the best performing manager within the equity centric strategy, largely attributed to their very defensive positioning. Inflation linked bonds produced a negative return for the month of May as well, due to foreign investors selling emerging market assets as well as the general market's view that inflation will not be a problem going forward.

We have maintained our current exposure to the strategy combinations. We continue to have a bias to equity-centric managers in the portfolio, as their defensive positioning mitigates market downside, but is required in order to capture equity market upside. While inflation linked bonds have sold off, we maintain our exposure to the asset class as risks are still evident to inflation surprises on the upside.

We continue to have conviction in equity markets (while our bias is toward global equity), given the continued attractive fundamental valuation of markets. While further headwinds are anticipated, we would emphasise the importance of maintaining a well-diversified portfolio and continue to evaluate our allocations to asset classes relative to inherent risks.