Market Review
Suffice to say that the quarter and month ending September were ruled by fearful investors fleeing to "safety" - forgetting that the US dollar is only safe as long as the herd thinks it is. This had a severe impact on illiquid shares and most currencies, but especially emerging market currencies. Even the extremely safe Norwegian krone depreciated 9% relative to the dollar.

Believing that the European governments would not be able to get ahead of the market and stave off a Greek default, we continued reducing illiquid shares and companies most directly affected by the coming recessions in the US and Europe. The strong rally at the end of September made us accelerate some of the selling, hence a much larger than usual cash balance (+9%) at quarter-end.

Until it is clear exactly who will bear the Greek loss, markets will continue seeking safety. Hence we are investing the cash in shares with high dividend yields - the most likely to come through the turmoil unscathed. The majority of the Fund's larger investments held up better than the market and some were indeed positive, including Ahold, Tesco, Microsoft, William Hill, Chiba Bank, Indiabulls Financial Services, Redecard and Scor.

Unfortunately this was undone, mainly, by our Chinese holdings and the large fall in most currencies but especially some of the emerging market currencies. However, a few shares like Amlin, Adira Dinamika, JPMorgan, Bank of America (sold during the month), Woori Financial Holdings and Hewlett-Packard declined more than the market.

With one or two exceptions, we believe the price moves are overdone and that we will witness a repeat of the rebound in the first half of 2009 possibly in the first half of 2012. The current top 10 holdings are undervalued. There is a possibility of a further 15% market correction and hence we keep monitoring developments in Europe to be able to take advantage of even better value that could emerge.

June repeated May's pattern, with equity markets reacting negatively to further monetary tightening measures in China and India and a deteriorating Greek/European situation. As in May, the US employment numbers and political wrangling over the US debt ceiling added to the misery.

Unfortunately for short-term focused investors in the fund, that is when smallermarket capitalisation shares get hit and that, indeed, was the case with many of our shares. Escorts (tractor manufacturer), Educomp and Tata all fell by an average 14%, whilst Chaoda, China Green fell by more than 11%. At the same time, Ahold (Dutch food retailer) slumped 6%, despite reporting good results.

The quarterly performance moves and direction verymuch reflect June's experience, with April a good month and May and June the very bad months. Despite the impact of the above, the fund performed better than the index due to its exposure to DBA (China telecom stock), Microsoft (finally) and William Hill (UK), while our Japanese banks gained an average of 3%.

Taking stock
Looking back 12 months, we have had a number of real winners (World Acceptance Corp, Xingda, Great WallMotors, Adira), all of which experienced price moves of 80% over the period. Why? Simply because they were sold down severely before that and, once the market normalised, they were rerated.We feel that when we look back in 12 months' time, we'll be able to say the same about China Green, Chaoda, Educomp, etc. Our visits showed that operationally they are doing well and that price weakness is as a result of them being sold down in a negative market. At the same time we believe many of our larger holdings, like Microsoft, Ahold, Bank of America and the Japanese banks, also have considerable upside. Our experience has been that when markets are as negative as they are now, these companies snap back quickly once the news flow turns. We think 2011/2012 will not prove to be any different

Market Review
The Fund experienced significant volatility during the quarter, with its performance under benchmark in January and February but rebounding strongly in March.

In January and February, we were surprised by the strength in both US and developed market banks. True, they seem undervalued but that belies the risks, especially if oil prices spike higher. In this case, the slower economic growth could put severe strain on the fiscal position of the UK and US, as well as many European countries.

The strong performance of the MSCI Index during this period was partly due to the large gains in the European and US banking sectors, which were prompted by the belief that the share prices in these regions were already discounting the risks.

Emerging markets, however, were generally fiscally sound, but driven by the risk of central banks having to raise interest rates to combat inflation induced by higher food prices.

In terms of the funds' positioning in February, our developed market holdings generally performed well (Barclays, Deutsche Bank, Viacom, Pfizer, Berkshire and Kraft). Special mention must be made of Novae, which gained 19% in February. What we liked about Novae is that it traded at a 30% discount to book value and is forecast to generate a return on equity (ROE) of 14%.

Reading the headlines would make you think March was a horrible month: a terrible Japanese earthquake and tsunami with a scale 5 nuclear accident; increasing Middle East uncertainty, with western powers and Arab league countries enforcing a no-fly zone in Libya; the resignation of the Portuguese prime minister after opposition parties failed to approve his austerity plan, which he was using to convince foreign investors to invest in Portuguese government bonds; negative US housing starts and US house sales falling by more than 20%, etc, etc. Yet, although markets DID react to the bad news, with the Japanese Topix down more than 20% at one stage, the fund did well, delivering a return of almost 2% for the month. The reasons for this strong performance: firstly, the fund remained underweight Europe/UK, secondly we added holdings in selected Japanese shares after the tsunami and thirdly investors flocked back to emerging markets and thus our Indian, Turkish and Indonesian stocks performed well.

Individual shares that performed well during the month
World Acceptance Corp (a microfinance lender in the US), Tisco (vehicle finance and asset manager in Thailand), Escorts (tractors) and Indian Bank in India, Daegu Bank in Korea, WR Berkley (US P&C insurer), Pfizer (pharmaceuticals), Viacom (media) and Heineken (beer).

The list above shows where our focus lies: smaller, unknown, undervalued, high growth companies out of the eyes of most investors.

The final quarter of 2010 was characterised by a much needed year-end rally in equity markets. Dollar-based investors also benefited from broad-based currency appreciation against the somewhat weaker dollar. The Turkish lira was the notable exception, weakening by almost 7% against the US dollar during the quarter.

In previous reports we made mention that value that has started appearing in selected developed market shares. While news flow regarding the investment environment can at best be described as "less bad" as far as the US is concerned, we are finding some opportunities there. We increased the Fund's exposure to US shares over the quarter, buying Bank of America, Kraft, Wells Fargo and Citigroup. We financed these with the proceeds from the sales of selected Turkish and Asian holdings in the Fund. In general, Turkish, Indian and Chinese shares performed poorly towards year end. This was mainly due to concerns about inflation in these countries. However, we maintained holdings in these shares as we remain confident they offer long-term value at these levels.

It is worth reflecting that despite the volatility in Asian markets towards year end, some of the fund's biggest winners for the year included Great Wall Motors, Xingda and DBA, as well as stalwart Adira, and some of the Indian financials. We added a few larger shares, but the fund maintains a bias towards lesser researched and, often, smaller shares, with a strong emphasis on bottom-up stock selection, an approach that we believe will continue to benefit investors.