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 local 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. Price action in both the equity and inflation linked bond market over the past month has not rewarded this decision. While we acknowledge that risks to our view do exist, we remain confident that the concerns currently priced in the market should dissipate resulting in risk taking investors being rewarded

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 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.