The PSG Equity Fund has enjoyed strong gains over the past year, as it has since the bull market commenced in March of 2009. Pleasingly, the highest contributors to fund performance over the past year have been amongst our higher conviction stock picks: Capitec, Steinhoff, EOH, Markel, Cisco, Old Mutual, Brookfield and AVI each contributed more than 1% in absolute performance terms over the twelve months to end March.

Most of the perceived "higher quality" stocks on the JSE trade at very elevated valuation levels and we believe little attention is being given to the price paid. We continue to avoid stocks that we consider to be overpriced on the basis that we think there is a relatively high probability of losing money. We can still find better opportunities than many of the popular financial and industrial stocks that are so large in the index.

We remain of the view that the best long term returns will come from the unloved parts of the market, if stocks are wisely and prudently selected. The Fund's largest position is Glencore. The resource sector has performed very poorly amidst sharply declining commodity prices. Sentiment is terrible and as a result valuations are at very low levels. Our research suggests that Glencore is materially undervalued relative to a conservative value of the cash it should generate in a normal year. We think that the market is not attributing and appropriate value to its marketing division, which generates superior returns on capital on a sustainable basis. Furthermore, we are confident that management are well-aligned with shareholders and hence will make capital allocation decisions that will grow per share value over the long run.

Our portfolios will often look very different to their benchmarks, as is the case at the moment. We do not own shares just because they are large in the benchmark. In fact, we consider a passive benchmark-hugging strategy to be particularly risky in the current environment, with stock market indices dominated by expensive large caps. We take comfort from the fact that the stocks we own are on average as good as the market but trade at a material discount to the average stock on the JSE.

We continue to focus on investing in superior companies that are not overpriced. Unfortunately, after strong price gains in recent years we are finding fewer domestic opportunities in the current market climate. However, we are well served by having a global process and can still identify many good opportunities within the breadth of the global equity universe. Accordingly, the Fund remains fully invested in direct offshore equities, at the regulatory limit of 25%.

We put risk at the forefront of our investment process and define risk as the possibility of losing money for our investors. We expect the stocks in the funds to deliver good returns for long term investors at acceptable levels of risk.