Market Review
Despite a very poor and deteriorating global macro environment, markets and the Fund performed very well, with the Fund generating a positive 15% return for the past six months. This again proves the point that valuation is a more important determinant of investment returns than the macro environment. As usual, although we select companies from a "bottom-up" perspective, country selection has played a role in 2012. While Europe, Brazil and China generally have been poor markets (we had very little invested in these countries), India, Turkey, Thailand and Sweden were among the best markets. However, despite the Chinese market's poor performance, our investments in DBA Telecommunication (a small Chinese technology company listed in Hong Kong) has showed a 108% price gain since the start of the year. Other strong performers were our Turkish banks, namely Halk Bank and TSKB (+40%), as well as Indiabulls (+67%) in India. The reinsurers in the fund (Scor, Amlin and Lancashire) continued to perform well and are expected to report good operational results soon, while Renault and Microsoft (both +17% year-to-date) and Illinois Tool Works also contributed positively. The share prices of Ahold and Tesco disappointed but are generating solid returns in a tough environment and very undervalued. It is only a matter of time before the market recognises this. We invested in Esprit (a clothing retailer being turned around by new management) and increased our holding in Hewlett Packard during the year, both detracting from our performance during this period. Our strength is to spot undervalued businesses rather than being experts in predicting the quarter or even year when the share prices bottom. We tend to invest in undervalued shares when the news flow is still poor and when potential upside per our calculations exceeds 100%. Thereafter all we need is patience.

It has been a very volatile month during which investors battled with the fear that the market had "run too far" and data that consistently kept surprising to the upside.

DBA, Tesco, JPM, Capital One, Ladbrokes and Tisco share prices performed well in March as the market came to its senses and realised they were undervalued, which helped the fund end in positive territory for the month and generate a strong 16% gain in US dollars for the quarter.

Unfortunately Hewlett-Packard, China Green and Indiabulls detracted in March. But one must bear in mind that China Green and Indiabulls are still 18% and 51% up for the quarter. Most importantly, the companies in which we are invested have reported satisfactory results and our meetings with managements indicate that this will continue.

Hence, we didn't make any significant changes during the month and the portfolio stays more or less as it was.

Market Review
2011 was a poor year for the fund. We had a number of shares that generated good performance (Ahold, DBA Telecommunication, Adira Dinamika, World Acceptance Corp, Redecard and US Bancorp, Renaissance Re, etc.). Unfortunately their gains were wiped out by the substantial price falls in particularly China and India. The Fund's investments in these two countries were responsible for 80% of the negative performance of the fund.

At the beginning of 2011, both these countries looked like oases of growth, especially relative to Europe, and, indeed, the earnings reported by the companies we were invested in have not been poor. The price falls had many fathers, but the main ones were the fear that these high growth economies would slump under the pressure of higher interest rates caused by food inflation, and the fall in exports to Europe and the US. At the same time, the number of frauds exposed at company and government level did not help sentiment.

The remaining 20% of the losses came from Korea, Japan and Brazil and then our investments in Microsoft and Hewlett Packard. We started investing too early in Microsoft, but it came through well in the second half. Microsoft is typical of most of the investments in the fund at the moment: very undervalued with very little gearing with sufficient growth potential. Despite the very attractive valuations, we did reduce exposures to China and India during the year to 18% of the fund. However, during 2012 we will most probably increase our exposure again, especially to India. We know what we would invest in but are waiting to see evidence of food inflation being tamed. The Fund invests in undervalued (mispriced) companies. Generally these are smaller companies in high growth environments (hence the large exposure to emerging markets). When markets are fearful, these companies get sold down the most, often despite the fact that their earnings and potential remains unaffected. However, when risk appetite does return, investors seek them out again, and due to their relative illiquidity these shares then often see substantial price moves.

The world is changed rapidly during 2011. Large cap shares in developed markets are at 25-year lows in terms of valuations. Hence we have increased our exposure to shares like Microsoft, Ahold, Tesco, Imperial Tobacco and Total Oil reducing the emerging market exposure to 42% giving the fund a blend of very attractive valuations, growth potential and safety. For full review of 2011 and expectations for 2012 please read our Market Review on our website (should be available late January).