The 12 month period to the end of December 2009, was characterised by contrasting financial market performance, volatility and mix macro-economic conditions globally. You might recall that the market hit its low in March 2009 and rebounded to deliver fantastic returns. A similar scenario played out with economic data and earnings forecast globally. Through this financial market environment, the fund was able to deliver a stable annual return of 10.89%for the 12 month period until December 2009.

This performance was largely driven by good asset allocation and stock selection decisions. The fund's benchmark is Namibian inflation (NCPI) + 4% over 24 months. , if you compare the fund's performance relative to the benchmark; you realize that the fund was able to deliver a real-return of 3.79% over inflation. I think 2009 was a good year for targeted return funds but the challenge for us and our peers still remain to meet those real returns on a rolling 24 month basis.

Over the last 12 months we have been gradually increasing our exposure to risky assets like equities at the expense of cash and we also managed to introduce inflation linked bonds to the portfolio. Our view is that the favourable macro-economic environment (improved GDP growth, low inflation and reduced volatility) should have a positive bearing to risky assets and targeted funds over the medium term. We are currently bullish on risky assets with the preference for property and equities.

We still prefer BHP over Anglo and we maintain shares like Impala, Sasol, Tiger and Shoprite in the portfolio. On the fixed interest side, we are still short duration given interest rate outlook and supply/demand fundamentals especially in the Namibian market.

Fund Review
Over the past 12 months, the fund has moved into positive territory and capital preservation now appears secure. The challenge is now to deliver real returns over coming rolling 24 months, which we are positive on. Given the outperformance of risk assets (equity and property) versus defensive assets (cash and bonds) in the current year, we have witnessed funds with lower return targets (CPI +3-4%) such as Inflation + 3%, lag funds with more aggressive return targets on account of the greater weight of risk assets in the more aggressive funds. This trend marks a reversal from what we witnessed last year as lower return target funds outperformed the more aggressive funds thanks to the then outperformance of defensive assets. The recovery in performance from risk assets YTD is positive for the delivery of the fund's return target over the short to medium term.

Looking Ahead
Over the past 12 months we have been increasing our exposure to risk assets (equity but more so property) at the expense of defensive assets- mainly bonds. The more favourable macroeconomic environment (accelerating GDP growth, lowish inflation and reduced volatility) that we expect will be positive for risk assets. At asset class level, our risk adjusted positions are Overweight Domestic Property, Equity and Cash, Neutral Offshore and Inflation Linkers and Underweight Nominal Bonds and Offshore Property. Within Equity our top stock picks in order are: MTN, Telkom, Billiton, Murray & Roberts African Bank