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 satisfactory performance in September, returning 1.70%, outperforming its benchmark by 1.15%. This is predominantly attributable to the Value Equity Biased strategy (Coronation Absolute), which once again managed to capture a significant portion of the upside in equity markets. The Protected Equity strategy (Prescient Positive Return) managed to capture some of the equity market rally as well. Prudential Positive Return (Portable Alpha) was the biggest detractor of performance, underperforming cash, as the managers equity alpha detracted from its ability to outperform its stated benchmark.

SMMI maintains the view that a cautious approach is prudent. Equities, still look reasonably attractive over the next 2-3 years, but over the short term we believe the market to be fairly priced. Bonds both locally and globally are quite expensive, given the recent purchases of these instruments and hence a further underweight position is well warranted.

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