After a sprightly start to the new year, markets were reined in during March. Global Equity Markets returned an impressive 10.9% (USD) over the 1st quarter. Greece continued to be a focal point of concern, but with austerity measures being passed, produced a basis for renewed optimism. The rally was supported by positive economic data from the US, which continues to reflect modest growth supported by accommodative monetary policy. The US Treasury weakened over the quarter and was the worst performing asset class. Given this backdrop, the local equity market rallied, but not as significantly as its global counterparts. The carry trade continues to be an attractive proposition for foreign investors, with the ALBI and ILBond Index outperforming cash. Property returned 8.0% outperforming all local asset classes. With equity market returns being positive over the quarter, the fund managed to capture some of the positive returns. The Value Equity Biased strategy (Coronation Absolute) was the main benefactor of the rally in equity markets. Exposure to other strategies such as Inflation-Linked Bonds continue to benefit the portfolio, as real yield compression and good inflation carry add to the fund's total return. SIM Absolute Return Income strategy was the biggest contributor to performance, but its conservative positioning of the strategy means that the fund will only outperform cash going forward. The fund's exposure to foreign currency, which acts as a hedge in the portfolio with a 5% allocation had minimal impact on the portfolio's performance. While the rapid rise of the market has surprised investors, we continue to see support for equity markets for the remainder of the year. However, given the continued risks to the global economic recovery, we would caution that gains are likely to slow and become more volatile. Concerns remain in the Eurozone, compounded by geopolitical risk in the Middle East and a potential for a slower growth scenario in China. +B6Some market indicators have shown mixed results, with the US exhibiting more positives signs of a recovery than other regions. While fundamentals have marginally deteriorated, valuations are still relatively attractive and we continue to hold the view that equities should outperform other asset classes during 2012. On a relative value basis, we continue to favour global equities over their local counterparts. The FRAs are pricing in a rate hike by the end of the year, but we have maintained the view that domestic interest rates are likely to remain unchanged for the next twelve months The fund's strategy has largely remained unchanged through the quarter. Despite the fact that fundamentals have deteriorated over the short term, we have maintained the view that a global recession will be avoided. Should market optimism return and a market rally ensue, the fund is positioned to capture some upside. Should the converse transpire, the fund has adequate protection in the form of protected equity, fixed interest absolute return and foreign currency to protect capital. We have eliminated exposure to the hedged equity strategy and believe international cash is a more efficient hedge. We have retained the low exposure to pure cash strategies in favour of low risk fixed interest strategies.

The sovereign debt and related banking crisis in Europe as well as the actions on the part of the ECB (a further decline in interest rates to 1% as well as the provision of €489 billion in cheap three-year loans to European banks) to provide much needed relief, dominated global markets during December. As has been the case for the entire 2011 calendar year, capital markets remained volatile during the month.

With global equity markets coming under pressure as a result of the focus on Europe and softening global economic data, it comes as no real surprise that more equity centric strategies struggled during the month. The portfolio's portable alpha and fixed interest strategies, particularly the inflation linked bond strategy which returned just over 2% for the second month, provided a robust underpin resulting in the portfolio delivering a positive return for the month.

Our outlook for the portfolio is essentially unchanged from last month. We remain confident that going into 2012 a global recession will be avoided, providing an environment that should allow for a moderate appreciation in corporate earnings. With the fundamentals remaining intact and valuations still relatively attractive, we continue to hold the existing exposure to the asymmetrical risky strategies. We retain our view that domestic interest rates are likely to remain unchanged for the next twelve months as our Reserve Bank is likely to err on the side of supporting economic growth in the face of potential exogenous risks. The expectation of low single digit returns from cash (as well as negative real interest rates) supports our view to retain low exposure to pure cash strategies in favour of low risk fixed interest strategies. We remain acutely aware of the risk and consequences of an unfavourable outcome in Europe and have positioned the portfolio appropri