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. Value Equity Biased strategies such as Coronation Absolute and RE:CM Flexible Equity, managed to mitigate some of the downside experienced in the local equity market, but detracted from the performance of the fund on an absolute basis. The Portable Alpha strategy underperformed cash as the manager's equity alpha was a drag on overall performance. The Fixed Interest Absolute Return strategy was the best performing strategy, producing a positive return, but underperforming cash over the month.

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 Cautious Fund of Funds merged with the Sanlam Multi Managed Cautious Fund of Funds on the 03/10/2011.

The blank class (SP2B) merged with the B9 class (SAMB9) and the B1 class (SP2C) merged with the C1 class (SMCFC).

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 underperformed its target marginally for the quarter. Given the volatility experienced in the quarter, the fund did well to protect capital, with strategies such as Fixed Interest Absolute Returns producing positive returns along with the exposure to a cash fund. Even though the Portable Alpha strategy produced a positive return over the quarter, the effective equity exposure detracted value as the alpha produced by this exposure was negative. The Value Equity Biased strategies produced the best returns over the quarter, predominantly due to the underlying managers' stock selection contributing positively to performance.

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 Fund maintains its current exposures to the incumbent strategies, as the Value Equity Biased and Protected Equity strategies should participate in any equity upside, while protecting capital and minimizing drawdowns should the market correct significantly. The Fixed Interest Absolute Return strategy should outperform cash over the next year and should benefit from its exposure to inflation-linked bonds. The duration of the strategy is less than 1 year and should not be severely affected should bond yields rise. We are currently reviewing the exposure of the Fund to the Portable Alpha strategy as the fund may well have to big a hedge to the local equity market.

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 produced a positive return for the month of March, but underperformed its benchmark. The underperformance can predominantly be attributed to the underlying strategies producing muted returns on the back of mediocre asset class returns. The Value Biased Equity strategy (RE:CM Flexible Equity) was the only strategy to outperform the local market, while SIM Absolute Return Income managed to outperform cash. The other Value Biased Equity (Coronation Positive Return) strategy produced a flat return, while Portable Alpha (Prudential Hedged Equity) underperformed cash significantly.

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.

Given this backdrop, SMMI has increased exposure to the Value Equity biased strategy in order to capture the possible upside, while ensuring the Fund remains adequately protected from capital losses. The fixed interest absolute return strategy has reduced its duration to less than a year, with a significant exposure to ILBs and should manage to outperform cash.

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 continues to outperform its inflation benchmark, producing returns well in excess of its objective over short and long term periods. Performance over the month of December was driven largely by the riskier strategies, specifically Value Biased Equity (Coronation Absolute) and Protected Equity (Prescient Positive Return). Coronation Absolute in particular managed to capture a significant portion of the upside, due to the strategies stock selection and asset allocation. Portable Alpha (Prudential Hedged Equity) underperformed cash in December, due to the manager's stock selection detracting value.

SMMI maintains the view that a cautious approach is sensible Even though equity markets have rallied 22.6% since August 2010, we maintain that equities still look reasonably attractive relative bonds and cash. Bonds both locally and globally remain expensive, even though yields have pushed higher.