It was a volatile quarter for global stock markets. July was an excellent month as equities rebounded strongly after a two month correction with pessimism having reached extreme levels and markets being oversold. Some of these gains were given back in August, only for the quarter to end strongly as fears of a "double dip" abated with the release of better than forecast US data and solid China data. Investors even latched onto negative data releases (evidencing lacklustre consumer demand and stubbornly high unemployment) as good news for the stock market as it increased the likelihood of the Fed engaging in "QE2" which would result in the debasement of the US dollar. The All Share Index gained (+13.3%) for the quarter, with the rally led by largel mid caps and industrial stocks. Property (+13.7%) put in another strong quarter, no doubt a beneficiary of the SARB interest rate cut and a continued drop in reported inflation. Bonds (+8.0%), income (+2.3%) and cash (+1.5%) produced positive returns with the longer end of the curve outperforming significantly. Global equities ($) gained (+14.3%), as did global bonds ($) (+7.3%); however due to Rand strength, the Rand returns weren't as strong at +4.0% and -2.4% respectively.

Over the quarter we switched out of our Property Fund into the more defensive Flexible Property fund; we increased our allocation to this Portfolio by 1 .6% to compensate for its defensiveness. We trimmed local equities by 4.2% but boosted our exposure to our Real Return Fund by 16.5% preferring to access exposure to equities in a protected manner.
Overall, the Portfolio was positioned to gain more exposure to protected equities during the quarter. It remains defensively positioned, though less so than last quarter. We remain concerned about the lack of visibility around the current global economic situation. We feel equity markets are looking stretched at the moment, but would look to increase our exposure to equities should valuations become more compelling.