The quarter was characterized by the Feds decision to leave rates unchanged at 5.25% (following 17 consecutive 25bpt hikes) as a 30% decline in the oil price from its August high eased inflationary concerns. Both contributed to a rally in all asset classes with the MSCI gaining 13.2% in rand terms, marginally better then the 12.3% increase in bonds. Property was however the main beneficiary registering a gain of 20.1%. A combination of SA's record current account deficit & emerging market jitters resulted in the local unit being the worst performing primary currency in the world over 3 & 12 months.

For the quarter it lost 7.7% against the dollar extending the 12-month loss to 18.2%. The fund therefore benefited from all asset classes ending the 3rd quarter in positive territory as well as rand weakness. In rand terms it gained 32.9% over 12 months with the 3 year return now also pleasing showing an annual growth rate of 15.1% (well ahead of the sector ave of 13.8%). Our overweight position in Europe contributed to returns, as it was the best performing region during the period under review. Conversely the overweight position in Japan detracted from returns (although it was the largest contributor over the previous 12 months) as did the growth bias of the portfolio. Being underweight the US added alpha, but this has been offset by underperformance of the American Growth fund (USD -7%) under performing the S&P 500 (USD +5.2%).

Our decision to change to the broader MSCI All Countries Index has already started paying off with the two top performing equity funds in both relative & absolute terms being the newly introduced India & China Focus funds (USD 18.8% & 7.5% respectively). Including property has also clearly proved to be beneficial. We remain bullish on equities despite their 122% dollar return since October 2002. Valuations are compelling following earnings growth of 170% over the same period resulting in equities actually being cheaper than the start of the bull market. Relative to bonds equities remain close to their most attractive levels since 1995 with European earnings yields (8.1%) more than double the 3.97% yield on the 10-year German bund! Prospects for global property also remain positive as the dividend yield of 3.32% compares favourably with global bonds (3.55%) as well as global equities (2.14%). On the downside declining interest rates & reasonable equity valuations are offset to a degree by potentially slowing corporate earnings. Global growth is also expected to moderate as a downturn in the US housing market combined with synchronized rate hikes by most major central bankers affect consumer spending. As such we are well diversified across all asset classes

For the 1st time since Q1 2005 global equities (-0.5%) experienced a quarterly decline. Conversely bonds reversed the negative trend of 2005 by gaining 3%. Our asset allocation tilt of being overweight equity at the expense of bonds therefore detracted from returns. Fortunately this was offset by our overweight property exposure, which was the best performing asset class. During the period under review rand returns were enhanced by the currency weakening substantially against the dollar (-14.3%) on the back of news that our current account deficit ballooned to 6.4% of GDP. Emerging market jitters also put the rand on the back foot although it's interesting to note that despite the fall it's still 4.3% stronger than it was 3 years ago! Within equities our tilt to growth stocks & small caps, which underperformed the broader market in May & June, hurt relative performance. Our overweight position in Japan & Emerging markets also detracted from returns this quarter however these regions have been the biggest contributors over 12 months. The portfolio continues to benefit from being underweight US securities although this has been mitigated by our large exposure to the America fund (USD -5.8%) underperforming the S&P 500 (USD -1.4%). Being overweight Asia aided returns but the region was not immune to the sell off as it experienced its 1st decline in 8 quarters. The top performing fund in both relative & absolute terms was the Australia fund (USD +5.7%). Major changes during the quarter include the purchase of the China & India Focus funds as well as the Latin America fund as we thought the sell off in emerging marketswas overdone.

A surprise upturn in global growth helped equities outperform bonds in Q1 as did inflationary concerns, which continue to undermine bond prices. Property however outperformed both bringing the 12month rand return to 36.1%. Tactical asset allocation helped the fund outperform its benchmark as it was overweight equities & property at the expense of bonds. Our overweight position in Emerging markets (USD +12.1%) also contributed to returns as did our underweight exposure to the US (+4.2%) which was the worst performing region. Within the US the American Growth fund was however the top relative performer with a gain of 11.3%. Being overweight small caps (European smaller companies fund +21.6%) added alpha however this was offset by our growth tilt during a period when value stocks did better. Unfortunately our overweight Japanese position detracted from returns as the region was affected by the Livedoor incident and experienced some profit taking following last years rally. For the 12months ended 31/3/2006 the fund is up 13% & ranked 4/17. Over 5 years it is the top performing fund in its sector!

We remain overweight equities as our positive outlook for the global economy is reinforced by the strong up trend of the OECD Leading Indicator and implies further under performance of bonds. Earnings yields of all major equity markets are higher than their 10 year bond equivalents and consensus earnings growth of greater than 11% over the next two years should provide an underpin to stocks. We believe the current environment characterised by a strong rand, emerging bond market spreads at record lows and the JSE trading at a premium to some developed equity markets provides balanced investors an ideal opportunity to buy this fund.

In dollar terms equities (+2.7%) once again got the better of bonds (-1.3%) in Q4 as inflationary concerns continued to undermine bond prices. Tactical asset allocation helped the fund outperform its benchmark as it was overweight equities. Despite the run shares remain cheap due to MSCI earnings growth of 14.1% in 2005 outstripping the gain of the benchmark resulting in PE's declining. Consensus earnings growth of 12% is expected this year & 9.4% in 2007. Relative to bonds shares remain close to their most attractive level since 1995 with European earnings yields more than double the yield on the 10 year German bund! The portfolio remains underweight US equities as we are concerned about consumer indebtedness. The underweight position contributed to returns as did all 3 American managers who outperformed the S&P 500. Japan was the top performing equity market so value was added by being overweight the region & this was compounded by all 3 Japanese funds not just beating the Topix but also being in the top quartile! An overweight position in emerging markets and Asia paid off as investors continued to invest in these regions due to their attractive valuations.

Looking ahead risks for the portfolio include stubbornly high oil prices coupled with fears of rising inflation & tighter monetary policies. Profit margins could also come under pressure (as a %of GDP they are the highest since 1967) & it is questionable whether companies will be able to pass higher input costs onto consumers. To counter this we are well diversified across asset classes, regions and styles having recently included a global property fund at the expense of global bonds.