Market review
Local bonds underperformed most other asset classes during the quarter as yields stayed largely range bound during the quarter and ended the period at marginally higher levels across the curve. The yield curve steepness dissipated marginally as the short end ticked up more than the longer-dated bonds. The year started on a positive note as the markets responded positively to the US budget deal that was voted in during the early hours of January 1, narrowly averting the so-called "fiscal cliff". Market sentiment reversed during February and markets were under pressure towards the end of the month. The rand retreated on the back of a record-high trade deficit number released for January, as well as mounting concerns regarding the widening current account deficit. The rand weakened further during March as negative sentiment weighed on our local markets, particularly towards the end of the month. Inflation printed at 5.9%, above an expected 5.6%. The Reserve Bank Monetary Policy Committee (MPC) left the repo rate unchanged at their scheduled meetings in January and March, in line with expectations The money market curve steepened during the quarter, with the three-month rate ending the quarter unchanged at 5.13%, while the 12-month rate increased from 5.47% to 5.66%. Local bond yields ended the quarter weaker. The R157 (four-year bond) traded at 5.49% at the end of the quarter versus 5.33% at the end of December. The R2023 (10-year bond) traded at 6.82% at the end of the quarter versus 6.78% at the end of December. The yield curve steepness dissipated from record levels during the quarter, ending the quarter marginally lower. The spread between the R186 (14-year bond) and the R157 (four-year bond) decreased from 194 basis points (bps) to 189bps during the quarter. The rally in real yields continued, with the real yield on the R197 (11-year inflation-linked bond) decreasing from 0.91% at the start of the quarter to 0.77% at the end of the quarter. The 10-year implied inflation breakeven yield increased marginally from 5.87% at the end of December 2012 to 6.04% at the end of March 2013. Nominal bonds delivered a return of 0.97% for the quarter, underperforming cash and inflation-linked bonds, which delivered 1.13% and 1.84% respectively. Credit spreads remained stable amid the change in the level and curvature of the yield curve.

SIM strategy
We used the volatility in the market, liquidity opportunities, as well as attractive valuations of selective counters, to restructure the portfolio during the quarter. We increased the allocation to quality corporate credit. Assets were invested in various maturities across the money market yield curve during the quarter, increasing diversification and enhancing the maturity profile of the fund. Portfolio performance was driven by the diversified blend of attractively yielding credit assets that we have been able to source and invest in on behalf of clients, as well as the well-timed asset allocation changes we were able to execute.