Market review
Developed markets outperformed emerging markets over the last quarter. In the US, further recovery in housing and employment data, plus continued quantitative easing, provided the backdrop for a 9.8% rally in the total returns delivered by US equities. European equities rallied towards the end of 2012 following the European Central Bank (ECB) pledge to do "whatever it takes" to preserve the Euro. During the last quarter, European equities consolidated last year's gains notwithstanding weak economic growth, the inconclusive Italian election leading to a political stalemate and the poor handling of the Cypriot bail-out which added to uncertainty. While a moderate economic recovery is under way in China, policymakers surprised investors with their renewed focus on select tightening measures to moderate property prices. Commodities underperformed on the back of this development. In Japan, markets performed strongly on the new strategy to drive economic growth and inflation through liquidity stimulus and currency weakening. Equities outperformed bonds in both developed and emerging regions, with investor rotation into equities from bonds, cash and commodities. The rand was the weakest currency globally during the quarter, depreciating 8.2% against the US dollar. Lingering mini-strikes in the coal sector, disappointing fourth quarter current account deficit dynamics, weak January retail sales numbers and a generally stronger dollar have been the main contributors to rand weakness. The JSE All Share Index returned 2.5% for the quarter. Defensives such as beverages (24%) andtobacco (19%) outperformed, buoyed by the weak rand. The worst performing sectors were gold mining (-18%) platinum mining (-14%), industrial metals (-12%) and retail (-11%). A combination of high valuations and slowing earnings momentum led to general and food retail sectors falling 10.7% and 11.0%, respectively. The rally in risk assets sparked a significant liquidation of gold ETF positions, leading to a sell-off in the gold price. The platinum miners retraced earlier gains on poor operational results and weak European auto demand. Industrial metals were soft on China's surprise property market tightening measures combined with the end of restocking in China. Copper and iron ore prices, both important earnings drivers for resource counters, ended the quarter in the red.

Portfolio performance
The JSE Equally Weighted Top 40 Index delivered a total return of 0.42% during the first quarter, which was below the 2.5% of the All Share index. During the March Index rebalance, the only constituent change was Discovery, which replaced the underperforming Mr Price. All the constituents were rebalanced back to 2.5% Major contributors to this underperformance were Assore, Goldfields, Implats and Mr Price. Underweight positions in the outperforming SABMiller, BTI and Old Mutual exacerbated this performance. The holdings in Medi-Clinic, Mondi and Bidvest managed to negate some of this underperformance. For the 12 months to March 2013, the return of this Index was a For the 12 months to March 2013, the return of this Index was a very good 20.11%.

Outlook
From a global macro point of view, a number of risks remain. Europe's ability to sustainably address the debt crisis will be a major determinant of market volatility during the period ahead. The economic recovery in the US is still fragile. Judging from the price of risk, as expressed by the volatility index, global markets are fairly optimistic on the outcome of these events. Domestically the economy is working through a period of lower growth and the combination of the budget and current account deficit is likely to be negative for the level of economic activity going forward. Future rand weakness is likely, not only based on the performance of the SA economy versus the world, but a further rotation from bonds into equities may prompt capital flows out of the SA bond market. In the current environment where markets are not pricing in some of the tail risks - and where significant valuation opportunities are few and far between - index tracking, from a risk perspective, seems to be one of the better routes to go. The JSE All Share Index is trading on a forward PE of just above 13x, which is above its long-term average. We expect earnings growth of around 20% over the next 12 months. Amongst the main sectors, industrials, with a forward PE of 15x are most overvalued. The equally weighted methodology offers a more balanced exposure to large capitalisation companies.