Market Review
The main feature of the second quarter of 2012 was a renewed focus on the European sovereign debt crisis. Elections that favoured parties that were against austerity in France and Greece threatened the conclusion of a bailout package and raised the prospect of a Greek exit from the Euro. While the second round of voting in Greece yielded a more palatable result, the need for Spanish banks to be recapitalised has since weighed on the region. Continued uncertainty in China, where the property market continues to slow and weak data points have led to lower expectations for second quarter GDP, also dampened markets. In the US, the Fed favoured an extension of operation twist (selling short-term treasuries and buying longer-term) to the end of the year as opposed to a third round of quantitative easing. In line with this poor macroeconomic backdrop, most commodity prices reversed the gains of the first quarter. Most notable price declines were oil and platinum, while gold showed a more modest drop. At quarter end, most commodities were trading close to their one-year lows.

What added to - and detracted from - performance
Weak commodity prices and the uncertain macro environment negatively impacted resource stocks during the quarter. Increased risk aversion over this period led to outperformance of the defensive diversified miners and gold counters. The iron ore miners and paper stocks also performed well. While our overweight position in the large-cap diversified miners, particularly BHP, held up well, overweight positions in platinum and oil detracted from the performance. With our value approach to stock selection, the significant drop in share prices has left us with increased conviction in the relative value offered by shares held on your behalf. A case in point is the Fund's holding in Northam Platinum. Northam underperformed significantly on the back of on-going operational problems at the Zondereinde mine, a smelter outage and the weak platinum group metal price basket. With European autocatalyst demand a big contributor to overall platinum demand, the turmoil in Europe contributed to negative sentiment towards the counter. Northam is spending capital to improve ore access at Zondereinde and it is also well down the track in developing the Booysendal mine. It has sufficient debt capacity to fund its capital projects, even if platinum group metal prices stay weak for a protracted period. At the current Northam share price, investors are paying only for the Zondereinde mine and getting the Booysendal mine for free. The Booysendal mine will increase Northam's platinum production by 40%.

What SIM did
During the quarter, we reduced exposure to paper, chemicals and sugar counters as these stocks offered less relative value following a period of strong outperformance. We maintained our exposure to gold but increased our weighting in AngloGold at the expense of Gold Fields. We increased exposure to counters that offer attractive relative value, including Rio Tinto, BHP and an exchange traded note that provides exposure to Anglo American minus its exposure to Kumba Iron ore.

SIM Strategy
The fund is guided by its value-based investment philosophy, preferring shares that are cheap relative to intrinsic value. The preferring shares that are cheap relative to intrinsic value. The Fund's principal objective is capital growth and preservation of capital by generating returns in excess of the peers invested in the resource sector.

Market Review
The first quarter of 2012 started on a high note for commodity markets, with China's decision to drop bank reserve requirements in late 2011 expected to provide early economic stimulation, signs of a US economic recovery and waning European debt fears. During March, however, uncertainty set in again as it became clear that the Chinese economy was still weak, with copper inventories reportedly building up and the property market still slowing. In the US, the economic recovery became more erratic and in Europe investors demanded much higher bond yields in Spain and Italy to compensate for solvency risks in what are Europe's third and fourth largest economies. Most commodity prices are still trading below their 2011 highs, even after staging a recovery during the latter part of 2011. Some notable exceptions have been the oil price, which is trading at new highs on the back of Middle Eastern tensions and low spare capacity, and the gold price, which is back at January's low levels after the Fed warned that the current low interest rates in the developed world could not last indefinitely. From a longer term perspective, a number of commodities, including oil, copper, coal, iron ore and gold, continue to trade at levels well above our estimates of their long term prices and are enjoying above-average profitability. Commodities trading below long-term price estimates and profitability include steel, platinum and US natural gas. The rand strength during the quarter also offset some of the positive commodity price moves.

What added to - and detracted from - performance
During the quarter, the fund continued to perform well against its peers, with outperformance coming from our overweight in paper, platinum, construction and offshore steel counters. We reduced our significant exposure to gold, which served us well, given the strong underperformance of the gold shares. Our underweight exposure to the second tier diversified miners and bulk commodity shares (African Rainbow, Assore, Exxaro and Kumba) detracted from performance.

What SIM did
We reduced exposure to paper, global oil and local construction counters as these counters offered less relative value following a period of strong outperformance. We increased exposure to counters that offer attractive relative value, including BHP Billiton, Sasol and Northam. We switched some of our position in Anglo American into an exchange traded note that provides exposure to Anglo American minus its exposure to Kumba Iron ore.

SIM Strategy
The Fund's principal objective is capital growth and preservation of capital by generating returns in excess of the market. The fund is guided by its value-based investment philosophy, preferring shares that are cheap relative to intrinsic value.

Market Review
Early in the fourth quarter of 2011 resource share prices rebounded off the lows established in August/September 2011 when European authorities demonstrated that they would adopt various initiatives to contain the debt crisis. Improvements in a number of US macro indicators during the quarter supported this improvement in sentiment. While Chinese macro indicators remained weak during the period, indications of a peak in inflation triggered speculation that Chinese authorities were close to stimulating the economy again. Chinese authorities took the first small steps in this direction towards the end of December 2011. Following the bounce early in the quarter, volatility was the main feature of equity markets, as participants were caught up in the tug of war between the major players in the European debt crisis. Another feature of the quarter was a weakening in the euro and commensurate strengthening of the US dollar. The rand weakened during the quarter on the back of the strong dollar, underpinning rand-denominated share prices. The oil price in US dollar terms remained high during this period despite adequate supply and weakening demand at the margin. Factors keeping the oil price high are a lack of production growth from non-OPEC countries; limited spare capacity amongst OPEC countries; most spare capacity being concentrated in hands of the Saudi's; high social costs in the Middle East and the threat of the "Arab Spring" resulted in OPEC producers needing an oil price of at least $90 a barrel to balance their budgets. The price discount between WTI and Brent oil narrowed to more normal levels. With the slight improvement in global sentiment and strengthening dollar, the gold price traded sideways at levels well below the peak reached in August 2011. The platinum industry is experiencing tough trading conditions. There were further production interruptions due to Section 54 safety stoppages. Platinum and rhodium prices came under pressure, given poor prospects for autocatalyst demand in Europe. Above-inflation wage and electricity price increases are fuelling cost inflation. Pulp, paper and steel prices came under pressure on the weak economic outlook, particularly in the Euro-zone. Coal and iron ore prices came under pressure due to weakness in Chinese/Asian demand. Base metal prices traded sideways at the low levels reached during August/September 2011.

What added to - and detracted from - performance
We are pleased with the Fund's performance in what has been a difficult year. It was one of the few amongst its peers to outperform the benchmark and ended close to the top of the peer group in performance terms. Our precious metal exposure contributed significantly to this performance. The Fund enjoyed a recovery in relative performance during the last quarter. Sasol, AECI, Barloworld and Billiton were major contributors to outperformance during the quarter. The platinum counters underperformed, as did Mondi and the steel counters (Arcelor Mittal).

What SIM did
During the quarter we reduced our positions in AECI and Goldfields. We continued increasing our exposure to Sasol and Goldfields. We continued increasing our exposure to Sasol and Anglo American, as both counters offered compelling value. We added new positions in Sappi, Aquarius platinum and Coal of Africa at opportune price levels. We switched the Fund's holding in Arcelor Mittal and EvrazHighveld into higher quality steel counters listed offshore.

SIM Strategy
The fund's principal objective is capital growth and the preservation of capital by generating returns in excess of the market. The fund is guided by its value-based investment philosophy, preferring shares that are cheap relative to intrinsic value.