Most markets started the quarter strongly on continued global central bank liquidity - the BOJ announced a massive $1.4tn bond buying program and the ECB cut its main refinancing rate by 25 basis points to 0.5%. However, markets became jittery when the Fed announced it could begin phasing out its bond buying this year; US government bond yields shot up (with global bond yields following suit), and the US dollar strengthened - in the process, commodities struggled and investors lost appetite for emerging market currencies. Despite weak economic data, the PBOC engineered a cash squeeze to reign in irresponsible bank lending; possibly in response to a Fitch ratings downgrade on their longterm local currency. On the local front, the rand weakened with foreign investor confidence dented as mining strikes / union clashes continue amidst wage negotiations. Against this backdrop, the All Share Index was flat (-0.2%), with a massive divergence between Resources (-11.8%) and Industrials (+6.9%) as "cheap" got even cheaper. Property was down slightly (-0.4%) giving up early quarter gains in dramatic fashion in response to a jump in bond yields; bonds were down (-2.3%) with the first foreign outflow in 9 quarters, but income gained slightly (+0.3%). Cash returned 1.3%. Global equities were down slightly in $ terms (-0.5%) while global bonds got hurt (-2.7%); both performed better in rand terms (+7.5% and +5.1% respectively) aided by rand weakness.

Overall, the Fund performed well for the past twelve months, producing a decent outperformance (+4.0%) relative to CPI inflation and this was notwithstanding a very turbulent and volatile past quarter. As per last quarter's commentary, we would caution that the recent reclassification of ASISA categories has put this fund in a mixed bag of peers and not too much can be read from peer relative performance. Coronation was the best manager for the last twelve months with both stock selection and their aggressive asset allocation towards equity and away from bonds driving their admirable performance. ABSA, although a defensive manager, had decent returns driven by their allocation to property and inflation linkers. Prescient has had relative underperformance over twelve month but it is expected that their derivativeprotection strategy will participate in more of the upside whilst not sacrificing downside protection, creating an attractive pay-off profile over the next 12 months. As mentioned in last quarter's commentary, we were of the opinion that most asset classes were expensive and were adding foreign equity exposure (approx. 8%) to the fund. We have been vindicated by the subsequent depreciation of the rand and relative performance of foreign equity. Given current valuations, we feel that a continuing capital preservation mentality is appropriate.