Fund Review
Sharp rand depreciation in September (13.6% versus the dollar) and during the quarter (-16.5%) rescued the rand return of the fund (+5.6%) for the quarter and for the year (+9.3%). However, dollar returns were tough (-11.8% for the quarter and -6% for the year) as stock markets and currencies retreated sharply, even though the dollar return was somewhat better than the MSCI World Index's -17.1% return and the MSCI Emerging Market's -23% return, because of good bond returns.

Despite their faster growth and stronger banking systems, the emerging market currencies got dumped, particularly in September, including Brazil, South Africa, South Korea and Russia as European banks withdrew funds and as investors headed for supposed safety in US Treasury Bills. So emerging market returns in dollars were very weak in September and in the quarter, as were European returns, with the top 50 shares in Europe (DowJonesEuroStoxx50 Index) almost back to the March 2009 lows, especially the banking shares. The mounting debt crisis in Europe, poorly managed by the Europeans, as well as the debt and over-spending crisis in the US, almost as poorly handled there, has severely dented consumer and business confidence.
So our overweight in Emerging Markets (28% of equities versus 13% for the benchmark) hurt the fund during the latest quarter. Assuming no renewed global recession, emerging market currencies and stock markets look particularly cheap, standing at nine times expected earnings over the next year. Of course, the crucial question is whether or not a recession will occur. Currently stock markets are pricing in a mild recession.

Looking Ahead
Markets (and economies) are in the hands of European politicians at this critical juncture. Will European leaders apply the right medicine to recapitalize their troubled banks and satisfactorily ring-fence the troubled countries in time to avoid another recession? Markets are very worried that they are taking far too long. In the end, it all comes down to confidence, the confidence for consumers to keep spending, instead of worrying about their jobs and the confidence of businesses to expand.

As of early October, we are hopeful that a rally is long overdue and may gradually be enfolding, because pessimism is at extreme levels and European leaders are at least acknowledging the need for action. Whether it is merely a rally in a downward moving market, no-one knows at this stage, although chartists suspect it is.

Fund Review
After two good quarters (December and March), the fund underperformed a tad during the June quarter. The second quarter was a difficult one for global stock markets as a variety of negative issues affected sentiment and economic growth, including the Japanese tsunami, the high oil and food prices, the Greek and other European debt issues. As a result the fund had a negative return of 0.5% in rands or 0.6% in dollars.

Our overweight position in equities hurt marginally as global equities returned 0.4% in dollars during the quarter. Within global equities, our double overweight holding in emerging markets (26.7% versus 14% for the benchmark) hurt as emerging markets returned -1 % in dollars. Also we were underweight in bonds and bonds had a good quarter (3.2% in dollars), although bonds are losing value in early July as yields rise. For the year to end June the fund returned 4.6% in rand terms or 18.6% in dollar terms. We remain overweight equities as the new quarter gets underway, underweight bonds, marginally overweight offshore listed property and underweight cash.

Looking Ahead
Global stock markets usually experience difficult times during the May to September period. This year has been no exception, although a nice bounce is unfolding in early July. We think on balance that we've seen the lows for the year and that the bull market remains intact, even though we may see further declines before September. However, slow economies in the developed world, coupled with weaker oil and food prices, imply lower interest rates for longer, which is good for equities. Fortunately companies are listed on stock markets, not governments, many of which remain mired in debt.

Fund Review
The fund had another good quarter, coming on top of the previous quarter's 4% gain in dollars. This three month period produced a return of 3% in dollars or 5% in rands, as the rand depreciated by 1.6% against the dollar, 5% against the pound and 7.5% against the euro. By comparison the MSCI World Index did 4.9% in dollars, the MSCI Emerging Markets Index did 2.1% and the JP Morgan Government Bond Index did 0.7%. The fund typically has around 50% in equities.
During the year to end March, the fund did 10% in dollars and 1.9% in rands. The MSCI World index did 14% and the JP Morgan Government Bond Index did 7.5%. Offshore listed properties (8.9% of fund), did around 15% in dollars.
We started the 2011 year overweight in equities (54% of fund, where benchmark is 47.5%), but at one stage reduced this to under benchmark during the troubles in Egypt and Libya, not to mention Japan. In March we reverted back to an overweight position as further good news about the global economy emerged. We stayed very underweight in bonds because of concerns about capital losses as economies strengthen and inflation picks up, not to mention huge government deficits causing more issuance of bonds.
On the currency front, the 14% in cash has been heavily tilted towards the euro (48% of cash) and the pound (37.5% of cash), leaving relatively little in the dollar (14.5%). The dollar lost 6% against the euro and 3.8% against the pound during the quarter.

Looking Ahead
Global stock markets bounced back nicely in late March as investors placed the Egyptian, Libyan and Japanese crises in perspective relative to the good news of the global economic recovery continuing to make progress in most regions. Offshore equities remain undervalued and to-date interest rates in the developed markets are still at record lows, although the European rates may rise later in April by 0.25% because of higher inflation in Europe.
Risks are higher because of the 26% dollar rise in the oil price so far in 2011 and because of issues in Japan and the Middle East. Also we are always cautious during the May to August period, which coincides with the northern hemisphere summer months. However, all-in-all, the global equity bull market remains intact.

Fund Review
The fund had a good final quarter of 201 0, with a return of 4.2% in dollars, or 6.1 % in Euros. The rand gained sharply during the last few weeks of 201 0 and was up 5% against the dollar in the 4th quarter and 7% against the euro, causing the fund to post a negative rand return of 0.9%.

During the 2010 year, the fund gained 9.1 % in dollar terms (15.8% in Euros), but lost 2.4% in rand terms as the rand soared by almost 12% against the dollar and by 18.7% against the euro. The equity portfolio (53.8% of fund) remained largely unchanged during the quarter, with emerging markets comprising around 30% of equities. Country returns in the last quarter saw the developed markets outperforming the emerging markets (9.1 % versus 7.4%), with the Japanese Nikkei being the best of the big markets (12.5% in dollars), followed by the US S&P 500 Index's 10.8%, then the German Dax's 9.1 % and the FTSE 100's 6.2%. On the emerging market front, the MSCI Russia Index excelled with a dollar return of 16.5%, followed by the MSCI South Africa's 13.1 %, but the two biggest emerging markets did poorly, with the MSCI China Index at 0.7% and the MSCI Brazil at 1.9%.

The biggest change during the quarter was to reduce the fund's exposure to global bonds to just 12.7%, way below the benchmark's 28.5% of fund. A loss was incurred by the global government bond index of 1.8% in dollars during the quarter (6.9% in Rands), as bond yields shot up (causing capital losses) on the back of better economic numbers, especially in the US. Developed market bonds have been in a broad bull market (declining yields) for 28 years and there is a fairly strong possibility that this bull market could be ending if the global economy continues its recovery. The fund's bonds are more invested in corporate bonds, which fared better than governments during the quarter, but which would also hurt if government bond yields continued their rise.

Looking Ahead
We remain over-weight in equities in the fund (53.8% of fund versus 47.5% for the benchmark) because we anticipate that global equity markets should continue to rally as economies recover, despite the probability of corrections along the way. We also remain over-weight in listed property shares (11.3% versus the benchmark's 9.5%) because of recovering economies and low interest rates. On the cash front, we are overweight the pound at this stage.