As the global recovery gains traction, GDP expansion is expected to improve in the US, EU and UK over the following years. Growth in the US appears sustainable at present, driven by consumer demand, private investment and improved competitiveness driving exports. Additionally, a number of countries in Europe have seen the worst of their fiscal austerity programmes, and are showing improvements in consumer confidence which are expected to boost domestic demand. Despite the recent slowdown, developing economies are still likely to be the long term drivers of global GDP growth given their favourable demographic profiles, high saving rates and continued growth in investment. These countries have experienced some short-term challenges due to escalating current account deficits and overreliance on their export-oriented sectors. We believe developing economies will need to continue focusing on driving domestic demand to have a more balanced and sustainable GDP mix. However, with most emerging economies having built up relatively healthy foreign exchange reserves along with their high savings rate, favourable demographics and relatively strong government balance sheets, we believe the longer-term outlook for the developing world remains positive.

Global equity markets have continued to move even higher during the past quarter with the MSCI World Index continuing its upward trend. During the past few years global bond and emerging markets have been the beneficiaries of strong inflows while the developed market equities have lagged. One of the key drivers behind this trend was the quantitative easing programs and with discussions starting around the potential winding down thereof, we saw the start of a reversal of the above trend - developed market equities experienced inflows, while global bond and emerging markets experienced outflows. Global pension funds are underweight equities compared to the long term historic average, which combined with the capital losses related to bonds creates the potential for higher demand for quality developed market equities. This bodes well for asset managers like us who has maintained our investment philosophy of investing in high quality companies which have strong competitive advantages, and the ability to leverage off those competitive advantages to deliver a higher level of sustainable Return on Equity (ROE) through the economic cycle. We believe that companies which have healthy balance sheets and strong cash flows have the ability to sustain themselves during challenging economic environments while delivering real earnings growth over the long-term. Our portfolio trades at a significant discount to the global equity market across various measures and provides sustainably higher ROE through the economic cycle. This should result in real wealth creation for our clients over the long term.

The global economy is expected to grow by 3.3% in 2013 with the growth primarily being driven by developing economies. The developed world has started to show some signs of improvement as they gain competitiveness through lower unit labour costs with growth in the US and EU expected to accelerate going into 2014. However, the rate of growth in developed economies is likely to remain muted given the need for continued austerity and fiscal constraints on government balance sheets. Private sector spending and job creation is likely to be key in sustaining economic growth within the developed world. Developing economies face some short term challenges due to rising unit labour costs and increase in cost of living which is transpiring into social unrest as seen in Brazil and South Africa. At the same time, the Chinese government has been tightening monetary policy to reduce lending and reign in the property market. These challenges do make the short term outlook for developing economies slightly uncertain. However, we believe that these developing economies including Sub-Saharan Africa are well positioned for long-term growth given favourable demographics, the continuing trend of urbanization and relatively stable government balance sheets. Lastly, while capital markets have been jittery on talks of tapering off of Quantitative Easing (QE) in the US, we believe that monetary policy normalization would be a sign of robust underlying fundamentals and improving unemployment levels and should be viewed as a positive element of sustainable long-term growth.

Global equity markets have continued to move higher during 2013 with the MSCI World Index continuing its march upward albeit at a slower pace than before. The rise has been on the back of corporate earnings being robust and some upward momentum noted in major developed economies such as the US. With financial markets having benefitted from the various QE programs of major global central banks over the past few years, the proposed tapering of QE by the Fed has impacted the global equity markets of late with higher volatility being realised. While the proposed reduction of QE over the next 2 years does impact financial markets, the confidence that sustainable economic growth is improving in major developed economies such as the US provides some comfort. Importantly, this should drive investors to focus on higher quality companies with an emphasis on stock picking. This bodes well for asset managers like us who have maintained our investment philosophy of investing in high quality companies which have strong competitive advantages, and the ability to leverage off those competitive advantages to deliver a higher level of sustainable Return on Equity (ROE) through the economic cycle. We believe that companies which have healthy balance sheets and strong cash flows have the ability to sustain themselves during challenging economic environments while delivering real earnings growth over the long-term. Our portfolio trades at a significant discount to the global equity market across various measures and provides sustainably higher ROE through the economic cycle. This should result in real wealth creation for our clients over the long term.

The global economy experienced a significant shift over the past decade with the developing world coming to the fore. The substantial improvement in these economies fiscal and financial positions during this period has led to currency appreciation relative to the developed markets. In addition, the robust demand and subsequent boom has led to a substantial rise in costs, particularly labour. This has resulted in a decline in competitiveness relative to the major developed markets. Cognizant of the rise in urbanization and their huge populations, the developing economies are looking to encourage consumer expenditure for their next phase of growth. Therefore, while developing economies are anticipated to remain the major drivers of global economic growth, the sources of growth within these economies are expected to change over the next 10-20 years. The developed world faces a tough environment but should deliver low but positive growth over the next few years. North America in particular is undergoing a resurgence in their manufacturing and resources sectors which should support global economic growth over the medium term. US fiscal deficit and government debt levels are however high and uncertainty around the debt ceiling may suppress investment in the near future. Political risk in the Euro-area remains elevated while future fiscal consolidation efforts will need to be managed very carefully on the continent. In the short term, the global economy remains tough but some positive momentum in the US and China in recent months points to an improvement in economic growth in the year ahead.

Global equity markets have continued to move higher during 2013, despite most of the developed world still struggling with elevated debt levels and unsustainable level of government deficits. In our view, unless sustainable policies are put into place to resolve these structural issues, global equity markets are likely to remain volatile. However, while governments around the world need to repair their balance sheets, high quality companies have continued to churn out strong cash flows and strengthen their balance sheets, leaving them in one of the strongest positions relative to history. At the same time, global equity valuations are still marginally below their long-term averages while artificially low bond yields continue to lend support to equity valuations. In an environment where we do expect equities to outperform over the long-term albeit witnessing volatility in the short to medium term, we have maintained our investment philosophy of investing in high quality companies which have strong competitive advantages, and the ability to leverage off those advantages to deliver a higher level of sustainable Return on Equity (ROE) through the economic cycle. The relatively high free cash flow yield of the companies within our portfolios ensures that these companies have the ability to consistently invest in their businesses without being dependent on bank funding, which in our view gives them a long-term sustainable competitive advantage in the form of a lower cost of capital. The high quality of these companies within our portfolios has come through in our historic performance whereby our portfolios have on average captured less downside during bear months compared to our peer group while boasting superior risk-return ratios over the long-term. Our portfolios are well diversified with high quality companies which are trading at a significant discount to the market. This gives us confidence that our portfolios can deliver real wealth creation over the long-term while minimizing volatility.