The South African equity market did not perform well year to date. The Shareholder Weighted Index (SWIX) returned -8% for the first three quarters of 2018, with the listed property shares remaining the main culprits contributing to this decline. The South African economy has failed to recover and has remained in a contractionary state, printing negative GDP figures for both the first and the second quarters of the year. The rand weakened against the US dollar and other major currencies during the third quarter, falling roughly 3% against the US dollar. Although exporting companies will see a silver lining, this fall will see pressure on inflation and interest rates in South Africa, which, in turn, will have a negative effect on already subdued growth in the economy. We have seen significant increases in the fuel price in South Africa, reaching the highest levels ever. This unfortunately puts further pressure on the SA consumer.

Globally, we have seen continued tension between China and the US, as Donald Trump has imposed further import tariffs on certain goods produced in China. This trade war that started in the second quarter continued well into the third quarter, and we are yet to see whether it has come to an end. The US economy is firing on all cylinders and the latest quarter-on-quarter growth figures printed an increase of 5.4%. We can see the result of this in the equities market, with the S&P 500 returning 10.5% for the year in US dollar terms.

The fund outperformed its benchmark over a oneyear period, returning negative 13.8% gross of fees, outperforming its benchmark by 93 basis points gross of fees. Our underweight position in the Fortress REIT LTD-B contributed most towards performance of the fund relative to our benchmark, while the underweight position in Sirius Real Estate LTD was the biggest detractor from fund performance relative to benchmark over a oneyear period. The fund continues to be aligned quite closely to the benchmark due to the current volatile market conditions.

The South African equity market gave back some of the returns it generated in the preceding quarter. The Shareholder Weighted Index (SWIX) returned -6.8% for the first quarter of 2018, with the listed property shares some of the main culprits contributing to this decline. On the political front, improved clarity about the future market friendliness of South Africa contributed to positive sentiment, with Cyril Ramaphosa elected as the new South African president. This led to quite a considerable strengthening in the rand and general optimism for the South African economy. His election is, however, not a panacea and it will take a lot of action to steer the South African economy towards market-friendly principles supportive of economic growth.

Globally, the annual wage growth in the US sparked fears of inflation and a rise in interest rates, which had the markets pull back by roughly 10%. After nearly a full recovery in the equity market further panic erupted as Trump announced import tariffs on items such as steel from China, sparking fears of the start of a trade war. This, combined with a tech sell-off, saw markets plummet back to their quarter lows.

Our underweight position in Fortress REIT Ltd-B contributed most towards performance to the fund relative to our benchmark, while the underweight position in Redefine Properties was the biggest detractor from the fund relative to benchmark over a one-year period. The fund continues to be aligned quite closely to the benchmark due to the current volatile market conditions.