Market review
Precious metals found their lustre in a period that continued to be characterised by volatility. Resources recovered strongly during the quarter following the poor end to 2015, with recovering commodity prices leading to higher equity prices. The FTSE/JSE Resources Index rose 18%, led by gold equities (up 92%) and platinum (up 75%). While commodity price moves were relatively modest in relation to the rise in equities, this was partially a result of extreme underperformance into the end of 2015 as well as extreme volatility in the rand. The currency traded in a range of R14.71 to R16.94 against the US dollar, ending the period at a low.

On the macro front, shifting expectations of when the Federal Reserve will raise US interest rates resulted in some retracement of the dollar and fresh demand for gold. Platinum appears to have been dragged along with this, given its precious metal characteristics rather than any fundamental change in the industrial demand picture. Chinese data remains on the back foot. However, expectations of stimulus and improved property market data saw base metals and bulk commodities bounce off their lows. After bottoming below $30/bbl during the quarter oil recovered to close the period at $43/bbl. Signs of co-operation between Saudi Arabia and Russia in terms of output was a key driver.

As commodity prices rose, those shares which had come under pressure as a result of balance sheet concerns rebounded sharply with key beneficiaries being Anglo American, Lonmin, Impala and ArcelorMittal South Africa.

Going forward we remain concerned around the ability of China to stimulate and drive growth in commodity demand as well as the time it takes for commodities to rebalance from over supplied positions. With that in mind we retain our preference for higher quality stocks with strong balance sheets and select commodity exposure.

What added to - and detracted from - performance
The fund underperformed the peer group largely due to our underweight position in the gold sector. In relation to the FTSE/JSE Resources index the fund performed in line with the market. Following strong long-term performance, overweight positions in Sappi and Mondi detracted from performance while our offshore holdings in Gemfields and Petra Diamonds (precious stones) and Norilsk (nickel) also impacted negatively. The fund benefitted from exposure to the platinum sector through Northam and Anglo Platinum as well as an overweight position in Anglo American and an underweight position in BHP.

What SIM did
During the period we lowered our exposure to Sappi in favour of Mondi given the relative performance difference between these two names. We selectively added some gold exposure through Anglogold and Sibanye, but we remain underweight the sector. Following a strong run, we reduced our exposure to Anglo Platinum in favour of Impala and Northam. We also added to BHP and Sasol while reducing our overweight in Anglo American.

SIM strategy
The Fund is guided by its value-based investment philosophy, preferring shares that are undervalued relative to our estimate of intrinsic value. The Fund's principal objective is capital growth by generating returns in excess of the peers invested in the resource sector. We remain overweight in the platinum counters. We are underweight oil and gas (Sasol) and prefer the defensive nature of quality businesses, such as BHP Billiton. We remain underweight the SA listed iron ore miners, offset by a position in Rio Tinto that offers value. In gold, we maintain our defensive position, with exposure to the gold ETF and better quality counters