After a correction in global equity markets during August, equity markets surged during September with the domestic equity market advancing 8.7% for the month. Global equities also had stellar returns with developed market equities yielding 9.1% in USD and emerging market equity yielding 10.9% in USD. Markets benefited from an increase in risk appetite from investors and markets providing higher yielding assets were the largest beneficiaries. This was clearly reflected in the ZAR strengthening by 5.9% against the USD, while other emerging market currencies experienced similar gains. The VIX Index (measure of global risk appetite) also decreased during September, at a level of 23.70%, down from the 26.05% level at the end of August. Global bonds continued to perform well during September and were supported by investors' perceptions of the probability of the next round of quantitative easing by the US Federal Reserve. Global bonds yielded 2.2% in USD in September, while domestic bonds only yielded 0.76% in ZAR. Global bond returns were however severely diluted for Rand investors due to the strengthening of the Rand against the USD.

The fund produced an exceptional return of 6.20%, outperforming the benchmark by 0.60% in September. This is predominantly attributable to the equity allocation as well as the equity manager combination. Coronation Equity, Prudential Equity and Cadiz Equity produced exceptional performance, outperforming their peers, with SIM Unconstrained the only laggard in the combination (though it was marginal). International exposure detracted from performance, as the Rand continued to strengthen.

SMMI believes bonds, both locally and offshore, are expensive and believe the fund is appropriately positioned for the ensuing market conditions.

ASISA did not approve the Domestic--Asset Allocation--Flexible sector and the fund moved into the Domestic--Asset Allocation--Prudential Variable Equity on 18 Nov 2010