Fund Review
Rand weakness during the quarter (-5.9% against the dollar, -4.8% against the pound and -1.1% against the euro) boosted the rand return of the fund to a positive 1.3%. The dollar return was -4.6% during the three month period, on the back of currency movements (the euro lost almost 6% against the dollar) and weaker stock markets (MSCI World Index down 5.4% and MSCI Emerging Markets Index down 8.8%). Listed property held its own during the quarter, while government bonds gained a tad and corporate bonds lost a tad.

During the year to end June the fund gained 11.6% in rand terms, almost entirely because of rand depreciation against the dollar (16.9%), the pound (15.4%) and the euro (5.2%). The fund continues to be overweight in equities (50.9% versus 47.5% for the benchmark), overweight in listed property (10.9% versus 9.5% for the benchmark), underweight in bonds (27.6% versus 28.5% for the benchmark) and underweight in offshore cash (5.2% v 9.5%). The fund was largely unchanged during the quarter. The fund's rand unit price reached its highest level since the 2008/9 crash.

Looking Ahead
As frequently occurs, the period from April has been a difficult one for global risk markets, coinciding as it does with the languid northern hemisphere summer months. Global economies have weakened and risk aversion has increased, to the detriment of equities, most currencies and some corporate bonds. STANLIB's house view is that the US and global economies will continue to grow, albeit slowly. We are hopeful that investors will return to riskier investments like equities as the northern hemisphere summer draws to a close in September. One big positive in 2012, as opposed to 2011, has been the consistent cutting of interest rates around the world, as well as the sharp fall in the prices of many commodities, especially oil. Both of these positives should help to underpin economies and stock markets later in 2012.

Fund Review
The fund had a good quarter, gaining 8.1% in dollar terms or 2.6% in rands. The rand gained 5.3% against the dollar, 2.4% against the euro and 2.9% against the pound.
The fund benefited from an overweight position in global equities (52.5% of fund versus 47.5% for the benchmark) as the MSCI World Index returned 11.7% in dollars and the MSCI Emerging Markets Index returned 14.1% in one of the best quarters for risk assets for a long time. This was due to an improving global economy and much better confidence in the eurozone. The fund also benefited from an overweight position in global property (10.5% of fund versus 9.5% for the benchmark). Global property returned 11.9% in dollars.

In addition, we maintained an underweight position in global bonds (26.3% versus 28.5%), with government bonds doing -0.5% during the quarter and the JP Morgan Global Cash Index doing 2.4%. We have held and continue to hold a smallish position in the Fidelity Euro High Yield Fund (1.9% of fund) that also did well.

For the year to end March, the fund's positive rand return of 9.6% was entirely due to the rand's 11.9% decline versus the dollar, 6.3% decline versus the euro and 11% decline versus the pound. During this period the MSCI World Index lost 1.7% in dollars and the MSCI Emerging Markets Index lost 11.1%.

Looking Ahead
Although there may be some weakness in equities and property early in the second quarter, on balance we are positive for the 2012 year. The global share bull market entered its fourth year on 9th March. Typically the fourth year is a better one than the third year. The global economy is improving and global equities look 10-15% undervalued.

Fund Review
The rand gained a tad against the dollar (0.3%), the pound (0.6%) and the euro (3.5%) during the last quarter, negatively affecting the fund's rand return of 1.71%. During the quarter global equities gained 7.3% in dollar terms, while global bonds lost marginally (-0.1%).
The return for the year of 12.3% in rands implies a loss in dollars of around 6%, given that the rand lost 18% against the dollar during the year. The US stock market, together with its strong currency, outperformed strongly during the year (up 2%), so any portfolio underweight in the US would have battled against the benchmark. By comparison, Japan lost 14.2% in dollars, Australia lost 10.8%, Canada lost 12.2%, France and Hong Kong both lost 16%, the UK lost 2.5% and the MSCI World Index lost 5%.

The equity portfolio (51% of the total portfolio, higher than the benchmark's 47.5%) is well diversified amongst four core Fidelity portfolios, with the Fidelity Select Global Equity fund the biggest holding (30% of equities), followed by the Fidelity Emerging Market Fund (28.3%), the Fidelity International Equity Fund (23.8%) and finally the Fidelity Global Sector Fund (17.8%). We also have a small holding in the Global Dow Jones Titans Fund.

Looking Ahead
The 2012 year has started positively, with the US stock market up in 5 out of the last 6 sessions. The third year of a bull market is typically a very difficult year and 2011 was no exception, with Emerging Markets down 18.2% in dollars and Developed Markets down 5% (Europe -10.5%, Germany -17.5%). The fourth year of a bull market is usually better and there is a fair probability, say 60%, that 2012 will produce decent returns, with risk assets like equities outperforming cash and bonds.