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. The tactical exposure to offshore exposure via USD cash materially hedged the overall portfolio from equity markets declining global over the month, producing a massive positive return.

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.