Markets grinded up steadily through the quarter despite US Q1 real GDP ultimately being revised down to -2.9%; positive US retail sales, manufacturing and employment data reassured investors that the Q1 GDP weakness was temporary in nature. The theme remained broadly recovering global growth. Valuations remain on the expensive side, with earnings delivery required to avoid market disappointment. Looking at SA, the Kagiso PMI index reflected a further contraction in local manufacturing. Disappointingly, S&P downgraded our sovereign credit rating to BBB-, one notch above junk status, on its expectation of lacklustre GDP growth against a backdrop of a high current account deficit, rising government debt, and the potential volatility and cost of external financing. The SARB kept interest rates on hold against the backdrop of weak domestic demand. On a positive note, the five-month platinum strike finally came to an end late in the quarter.

Against this backdrop, the All Share Index was up strongly (+7.2%), aided by Industrials (+9.1%) and Financials (+7.8%), but with Resources lagging (+2.9%) after a strong Q1. Property was up solidly (+4.4%) with bond yields coming off slightly; bonds were up (+2.5%) on foreign inflows. The short end of the curve was slightly behind with income returning 1.8% and cash returning 1.4%. Global equities were up in $ terms (+4.8%) with global bonds behind (+2.5%); both performed slightly better in rand terms (+5.8% and +3.5% respectively) aided by rand weakness.

Looking at the underlying (building-block) funds, it is pleasing to note the improvement in the performance of our equity buildingblock over the past 12 months (with strong performance from Electus and Coronation coming through). Relative to the fund's benchmark composite, we held an underweight position to local equities at quarter end, continuing to feel this prudent with valuations remaining stretched. We were underweight local property. We trimmed our bond exposure when the 10-year SA government bond yield dipped below 8% intra-quarter.

We remained overweight foreign (being overweight the US dollar and foreign equities), having taken the opportunity to increase our foreign exposure early in the quarter on rand strength. The Fund delivered a return of 19.3% for the past 12 months. Over the past 3 years the Fund has delivered a return of 12.9% per annum.

The STANLIB Multi-Manager Inflation Plus 3% Fund of Funds will change it's name to STANLIB Multi-Manager Medium-High Equity Fund of Funds, effective from 27 June 2014

Markets initially struggled on reduced support from US monetary policy and political tensions in the Ukraine. But the quarter ended strongly as investors focused on broadly recovering global growth, with the weather-related slowdown generally expected to be temporary in nature. We do however caution that with valuations stretched, earnings delivery is required to avoid market disappointment. China was in focus with its central bank taking steps to reign in credit expansion to clamp down on speculation, and with a contraction in its manufacturing sector. The SARB raised the repo rate by 50bps in response to a weaker rand; the general expectation is for a shallow hiking cycle against a backdrop of weak domestic demand. Interestingly, SA banks rallied as the outlook for stock gains in Russia and Turkey soured on political concerns.

While SA is currently seen as one of the least ugly emerging markets, we caution that a sovereign credit downgrade post the elections is a risk. Against this backdrop, the All Share Index was up strongly (+4.3%), aided by Resources (+10.6%) and Financials (+6.1%), but with Industrials flat (+0.8%) - Resources finally came to the party on earnings growth (albeit it off a low base) and as commodity prices firmed despite slower Chinese growth. Property was up slightly (+1.8%) despite a rise in bond yields; bonds were flat (+0.9%) on continued large foreign outflows. The short end of the curve underperformed with income only returning 0.7%. Cash returned 1.3%. Global equities were up slightly in $ terms (+1.3%) with global bonds outperforming (+2.4%); both performed slightly better in rand terms (+1.8% and +2.9% respectively) aided by rand weakness.

Relative to the fund's benchmark composite, we held an underweight position to local equities at quarter end, continuing to feel this prudent with valuations remaining stretched. We were slightly underweight local property. We however took the opportunity to purchase bonds (bringing us closer to a neutral position) with the shoot-up in yields bringing them closer to fair value. Our overweight foreign (being overweight the US dollar and foreign equities) was reduced due to rand strength, which we took as an opportunity to increase our foreign exposure in early April.

The Fund delivered a return of 15.6% for the past 12 months.
Over the past 3 years the Fund has delivered a return of 11.7%
per annum.