The significant volatility seen in 2015 continued into 2016 as the quarter started negatively for risky assets but ended strongly, particularly for emerging markets. The deteriorating global economic outlook placed strain on sentiment towards global equities, as investors favoured bonds. Global Central Banks maintained looser monetary policy during the quarter with the US Federal Reserve opting not to raise interest rates while the ECB added to their monetary stimulus measures. The Bank of Japan followed the ECB in introducing negative interest rates in a further attempt to stimulate inflation while China, whose growth continues to slow, cut the reserve requirements for banks even further. Locally, the SARB raised the repo rate by a further 0.5% to 6.75%, once again citing concerns on rising inflation. February inflation came in at 7%, significantly higher than market expectations and the upper-end of the target band. Local politics remained in the spotlight throughout the quarter as questions of whether President Jacob Zuma would resign affected sentiment.

Global developed market equities declined 0.9% for the quarter while emerging markets rose 5.4%, both in dollars. Global bonds and property performed well, returning 5.9% and 5.5% in dollars. Returns in local currency were, however, diminished as the rand rebounded in the first quarter following a tough finish to 2015, ending 5.3% stronger against the US dollar.

The local All Share Index rose 3.9% over the quarter, driven mostly by the resources sector. Resources, particularly gold mining companies, rallied strongly throughout the quarter returning 13.2% on the back of stronger commodity prices. Industrials lagged, declining 0.7% while financials recovered some of December..s losses returning 5.4% over the quarter. Yielding assets had a particularly good quarter, bouncing back strongly with local property and bonds returning 10.1% and 6.6% respectively.

In light of this, those managers who have been fully invested offshore, avoided resources and kept duration low in their fixed income exposure typically struggled during the quarter. Value as a style rebounded strongly as parts of the market which have come under pressure in 2015 pulled back. Funds with high exposure to local property also added to returns.

This quarter once again illustrated the unpredictability of current markets. We therefore continue to emphasise the importance of diversification within the portfolio through the use of managers with complementary skills and style exposures. As market uncertainty continues one would expect volatility to remain a key feature in 2016.