US stocks reached fresh record highs over the course of the last quarter, despite ongoing intermittent geopolitical tensions. Continuing evidence of an economic recovery in the US and the prospect of an end to quantitative easing next month enhanced the outlook of the US dollar, further bolstering the equity market. Conversely, within Asia ex-Japan, the prospect of a stronger dollar caused many underlying currencies to weaken. In addition, concerns around slowing Chinese growth had a negative impact on the region over the last quarter, as reflected by the fall in price of metals, oil and agricultural products. Japanese equities were weighed down by recent economic indicators, which painted a gloomy picture of the domestic economy, as scepticism grew around ongoing government efforts to restructure the economy. Within Europe, the performance of underlying markets was mixed as concerns around increasing disinflationary pressures were tempered by the prospect of the European Central Bank engaging in further monetary stimulus.

Our proprietary risk appetite measure continues to track the movements in investor sentiment. The global view shows a move to a more defensive stance, and this can also be seen in the North American, European and Asian regions. Japan is the current outlier, though only marginally, with a roughly equal mix between "risk on" and "risk off" positioning.

Fund returns were positive relative to the peer group over the quarter, despite the heightened levels of cyclicality in relation to style returns that characterised the market at this time. The diversified and dynamic nature of the investment process reduced the impact of this style cyclicality on the overall return series of the Fund. Performance was driven by our selection of stocks that demonstrated attractive valuation relative to their fundamentals. Similarly positive returns to market dynamics were supported by good industry positioning. However, returns to stock level trending were weaker during the period as market uncertainty impacted negatively on previous winners.

Sector selection and stock selection within sectors marginally added value, in equal measure, to the fund. Our overweight exposure to the materials sector, and our stock selection within the consumer staples added most value. By contrast, stock selection within the IT sector impacted negatively on performance.

Among our stock selection components, returns were predominantly driven by our dynamic valuation characteristic. Stock selection was positive as a result of inexpensive stocks outperforming expensive ones within this characteristic, while returns coming from the quality component were negative for the period. Stronger returns during the quarter were derived from the price-driven strategies within the market dynamics component over the course of the third quarter. Returns from our analyst sentiment component, which seeks to capture analyst information not currently captured within the share price of a given stock, were neutral. Meanwhile, sustainable growth detracted from performance of the strategy over the period.

In terms of positioning, the fund reduced its underweight holding in financials and went further underweight the consumer staples sector. Positioning within the industrials sector switched from an overweight to an underweight.

As we move into the final quarter of 2014, the market remains in a very low volatility state, with generally positive direction. However, high levels of cyclicality across different investment styles continue to play out within underlying markets. The challenging nature of equity markets contrasts sharply with persistently low levels of both realised and implied volatility. These remain subdued, in large part, due to continued central bank intervention in the bond markets. Europe and Asia now sit with neutral market sentiment after starting the year positively. Japan and North America sit towards the more optimistic side, though less so than at the beginning of the year. Accordingly, we anticipate an increase in market volatility from its current low levels as this new dynamic plays out.

It was a more mixed month for global equities in June, with local currency returns positive but mainly driven by North American and Japanese equities. The further negative revision of US first quarter gross domestic product (GDP) continued to be viewed as weather related, with consumer spending, manufacturing and business investment showing strong improvement in the second quarter of 2014. Continued fears about European growth held back European equities and this, plus the spectre of deflation, prompted action from the European Central Bank (ECB) with moves including an interest rate cut into negative territory. An announcement of robust reform of the Japanese economy also spurred Japanese equities to a positive month.

Performance was flat on the month, with the fund performing in line with the global equity index. Stock selection was slightly positive over the month, with sector selection neutral. Stock selection was positive in healthcare and financial stocks, with weaker selection in the industrial sector. Good returns were seen to stocks selected via the use of analyst information, the analyst sentiment characteristic. Negative returns were seen to the sustainable growth characteristic. This was impacted by a positive view to airlines stocks through this signal.

The fund remains tilted towards "risk on" as a theme, together with still low future volatility and more neutral market returns. Within sector positions, the underweight in telecommunications services was moved to a small overweight, with the energy sector moving in the opposite direction, overweight to underweight. There was also an increase in the utilities overweight towards maximum.

It was a volatile quarter for global equity markets. After a record year in 2013, markets around the world experienced a sharp correction in January, as a result of a number of currency devaluations across emerging markets, together with a number of disappointing earnings results in both the US and Europe. February showed a reversal of that negative environment as all major markets, bar Japan, posted positive returns. Political uncertainty in Ukraine and Turkey rumbled on, although emerging markets took part in the general rally after January's poor performance. Most equity markets finished the quarter in positive territory, after further gains during March, with the exception of Japan, which finished the quarter significantly down year to date.

Fund performance was very strong over the quarter as it continued to build on last year's strong track record. Medium-term performance has also been very strong as the approach of diversifying across many different types of stock selection tools and incorporating macro views performed well in an unstable environment.

All five stock selection characteristics proved useful at picking outperforming stocks over the quarter, and in particular, focusing on stocks with a sustainable growth outlook. Good stock selection was also widespread across regions, with positive returns generated in each of the four main regions, and being particularly positive in Europe. Sector allocation was flat over the quarter, with most returns coming from stock selection within sectors. The most profitable areas of the market for stock picking were among industrials, financials and consumer discretionary stocks.