Over the past year the Seed Flexible Fund has evolved from being invested into multiple managers, but only one strategy per asset class, to being invested into multiple strategies in each asset class.

The Fund has increased the number of mandates mainly as a result of the increase in the size of the Fund. The Fund now contains 3 local equity, 1 local property, 2 local fixed income, and 2 global equity mandates. The Fund also includes 2 strategies that should generate uncorrelated positive real returns.

Each strategy has been specifically selected to perform a certain role that, when combined with the other strategies, should give the Fund the best opportunity to outperform its benchmark as consistently as possible over rolling 3 year periods.

While the process of populating the Fund with a full range of strategies is more or less complete, Seed continues to monitor the relevance of each strategy and ensures that each manager stays true to their process. Over time new strategies will be introduced and managers will be included and removed based on our research. Seed continues to tactically alter the weightings to the various asset classes based on fundamental valuations.

The Seed Flexible Fund has delivered a return of CPI + 6.9% per annum since launch.

One of the larger investments in the Seed Absolute Return Fund is the Foord Compass Debenture (4.2%). The debenture is a closed end investment vehicle that seeks to generate a return of CPI + 10% per annum over rolling 5 year periods while avoiding negative returns over anyone year period. The debenture gives investors access to Dave Foord's considerable skill in an unconstrained mandate.

During the past 10 years, the investments managed by Foord Asset Management (the majority of the debenture) have generated a return of 23.1% po versus 15.6% po from CPI + 10% and 15.5% po from the ALSI. This return has been achieved with significantly lower risk than the ALSI.

Over time the listed debenture will track the performance of its Net Asset Value (NAV), but will generally trade at a discount or premium to its NAV in much the same way as a listed conglomerate trades around its NAV.

Foord is able to have a longer investment horizon in this portfolio when compared to other mandates as the closed end nature of the debenture provides a permanent capital source. This longer term mindset, coupled with the relatively illiquid nature of the debenture, should combine to generate excellent real returns for debenture holders into the future.

The Seed Flexible Fund has returned CPI + 5.6% per annum since its launch.

A major part of Seed's process is working out where each asset class is trading relative to its long term fair value. From this point the decision to be over or under weight each asset class follows logically.

There are many methods and tools that can be used to value asset classes. At Seed we distil these into processes that are robust, and then apply them rigorously on a consistent basis. By being robust, the valuation tools should work in a wide variety of economic climates and market cycles and should rather be 70% right 80% of the time, than 100% right only 50% of the time.

When valuing equity markets the starting PE (Price to Earnings ratio) is a powerful indicator of future returns (measured over 5 years). The PE is therefore the starting point for determining whether equity markets are under or overvalued. There are periods, though, where earnings are at elevated levels and in these instances the PE is typically understated.

Seed has built a step into our process to flag such instances and adjust the valuation model accordingly. As a result, Seed will reduce the equity exposure (more than a single factor PE model would suggest) in cases where the PE is high AND earnings are significantly above trend.

The Seed Flexible Fund has returned CPI + 6.9% per annum since inception.

2011 proved to be a difficult year for local investors as all major local asset classes (equity, property, bonds, and cash) produced single digit returns and failed to beat inflation on an after tax basis.

Investors who persevered with an allocation to global assets were rewarded in 2011 as the rand weakened by over 20% against the US dollar providing satisfactory rand returns from most global assets.

Reviewing past returns is a useful process but has little impact on assessing future returns and it is for this reason that Seed focuses on assessing current valuations relative to historic levels, Asset class expected returns are generated on a 3 - 5 year basis and the Fund's asset allocation is optimised based on this research.

As at the beginning of 2012 the local equity market is fairly valued, the rand is slightly stronger than fair value (i.e, should weaken slightly), and global high quality shares remain undervalued with attractive dividend yields.

With most countries' interest rates (South Africa included) at historic lows Seed remains wary of fixed income assets - rising interest rates and inflation are the enemy of fixed income assets - both locally and abroad.

The Seed Flexible Fund has generated a return of CPI + 4% per annum since inception.

Investments in the Seed Flexible Fund are generally made assuming that fair value will be reached over a 3 - 5 year period. In reality fair value is seldom reached in a linear manner and active management of the Fund is therefore required to take advantage of deviations from fair value. The weighting to investments that trade below fair value is increased, while those that approach and exceed fair value are reduced.

In August, excessive market movements provided an opportunity to increase the weighting to local equity closer to benchmark. During September the weighting to global assets was reduced from just over 23% to around 20% as the Rand weakened from R6.99/$ to R8.27/$ intra month, ending at R8.04/$.

It is crucial to Seed's investment process that the Fund is positioned for potential moves before they take place. In this way an objective reassessment of fair value can be made in times of volatility and proactive changes to the Fund can be made when opportunity arises.

The Investec Global Franchise fund has recently been added to the Seed Flexible Fund. This is a global equity fund that invests into a concentrated portfolio of high quality global companies. Top holdings in the Fund currently include: Unilever, Pfizer, Johnson & Johnson, Kellogg, and Coca Cola.