Global equity market volatility continued into September as concerns regarding the potential economic impact of the European sovereign debt crisis deepened. The mixed economic data released during the month did little to comfort investors. The negative sentiment, which impacted risky assets globally, weighed most heavily on global emerging market currencies, including the Rand.

The FTSE / JSE All Share Index fell 3.6% in Rands and the MSCI World Developed Markets Index was down 8.8% in US$. The 13.6% decline in the Rand vs the US Dollar did however provide a welcome buffer for the international component of portfolios. Flight to safety saw local bonds produced a negative return as well, returning -2.09%, with inflation-linked bonds producing -1.22%. Cash was the saving grace in the local market, producing a minute return of 0.45%.

The portfolio's overweight position in risky assets, on our view that the likelihood of a global recession is remote, did detract value during the month. However, the fund managed to outperform its benchmark, albeit marginally. Manager selection added value, with Investec Value being the best performing manager in the equity manager combination. Exposure to government and inflation linked bonds detracted from performance, given the flight to safety by investors globally and not discriminating across emerging market asset classes. The best performing asset class was international sovereign bonds, which produced a massive positive return, which the fund unfortunately did not participate in as the asset class is hugely overpriced. Global equity exposure did however contribute positively to overall performance, given the weakening of the Rand by as much as 13.5%.

As indicated last month, the current market prices suggest a significant contraction in company earnings coupled with a global recession. Our view remains that the likelihood of a global recession is remote. As also previously indicated, we have used the recent market action as an opportunity to add exposure to some asymmetrical risky assets and where possible, to move low yielding cash investments into more inflationary protected instruments like inflation linked bonds.

The Glacier Financial Solutions Moderate Fund of Funds merged with the Sanlam Multi Managed Moderate Aggressive Fund of Funds on the 03/10/2011.

The blank class (SPMM) merged with the B9 class (SAAB9) and the B1 class (SMM1) merged with the C1 class (SMMAC).

Over the last quarter, equity markets globally have continued to be marred by uncertainty of the economic landscape of certain regions of the globe, particularly the EU, USA and Japan. This resulted in intra month volatility in equity markets, both internationally and domestically, but only saw equity markets give up minute gains experience in Q1 of 2011. One of the best performing asset classes was fixed interest both domestically and internationally, with the local bond index marginally outperforming local inflation linked bonds. Global bonds performed well over the quarter, as investors sought to safe heaven assets. The best performing asset class was local property as interest in the sector has started picking up with new listing in the tiny sector.

The Fund marginally underperformed its benchmark over the quarter, predominantly attributed to being overweight local and international equity, which had quite significant exposures in the fund overall. The equity manager combination detracted value as well, with Coronation Equity being the best performing equity manager in the combination. International exposure was a detractor of performance as international equity produced a small negative return and the Rand appreciated marginally.

We maintain a cautious approach, with the uncertainty evident in the major economic regions of the world. However, based on the valuations of equity markets, both locally and globally, the earnings prospects for companies are still very much intact and that equities should produce the best return amongst all other asset classes. Local bonds seem to be reasonably priced currently, but with the inflation outlook deteriorating over the next year, bonds are very expensive and will not adequately compensate investors for the risk taken.

The inconspicuous return of 0.52% for the All Share Index in March 2011 does not in any way explain the events of the month that past. To the 16th of the month, the market was down more than 6%; thereafter to month-end all these losses were recovered with some to spare. With mediocre returns from the rest of the other asset classes, it was not a good month for investments in absolute terms.

The fund managed to produce a positive return in March, marginally underperforming the benchmark. This can largely be attributed to the equity manager combination, which added value relative to the broader market. Prudential Equity and Coronation Equity contributed significantly to the equity combination return. International exposure was a significant detractor of performance, given the strengthening of the Rand during the month and poor return by developed equity markets.

SMMI does see the equity market volatility that we have seen to continue for some time going forward and these volatile environments do provide opportunities to tactically allocate within the portfolio. While equity might be expensive on a valuation basis, it will still provide a better return over a 12 month basis. The ensuing environment is still quite negative for bonds in light of inflation bottoming out and posing a concern going forward.

Against this backdrop, SMMI has positioned the portfolio defensively (given the defensive positioning of certain equity managers), while still managing to participate in the equity market upside. An underweight to local bonds is maintained as inflation poses a risk to the upside and rate hikes will ultimately push bond yields higher. Foreign equity still remains attractive and the fund maintains its overweight to the asset class, especially in light of the overvalued Rand.

With 2010 coming to a close, equity markets globally ended the year strongly as investors brushed aside fears of a double dip recession. Good US economic data contributed to investors returning to the risk trade, even in the face of the European debt concerns. The MSCI World Index produced a return of 8.55% in USD terms, but was eroded by Rand appreciation for local investors, producing 2.46% in Rand terms. Emerging Market bonds were the worst performing asset class for Q4 2010, followed by Global bonds, which produced -7.1% and -6.6% respectively. The All Share Index produced a return of 9.47% in Q4, 2010, with December producing the bulk of the return for the quarter (6.20%). Domestic bonds surprised on the upside, given bonds poor performance globally. The All Bond Index produced 0.7% for the quarter and 1.7% for the month of December. SA ILB produced - 0.3% for December, but returned 0.9% for the quarter. SA cash produced a consistent 0.5% for December and 1.6% for Q4 2010.

The fund managed to capture a fair amount of the upside presented in markets in December, but underperformed the benchmark marginally. This was primarily due to the underweight position in local bonds, given the good performance of the local bond market in December. International exposure detracted from performance as well, due to the rand strengthening significantly. The equity manager combination did well to perform in line with the All Share Index, with Coronation Equity outperforming the equity market over Q4 2010.

Since inception, the fund has outperformed its benchmark comfortably, attributed to the margninal overweight in local equity as well as manager selection contributing to performance.