The third quarter was characterised by generally weak economic conditions in the more developed markets but also a slowdown in emerging markets. This general deterioration in economic activity saw emerging market currencies generally weaken more than their developed counterparts - accentuating weak dollar-based returns. Part of the reason for the weakness was a decline in commodity prices, which retreated materially during the quarter. Although China's economic growth remained robust, warning signs were evident and, along with other developing markets, rising inflation and interest rates had an adverse impact on markets. In Europe, conditions remained fragile and concerns over potential Greek debt defaults resurfaced. In fact, no clear progress was made on the debt issues that have been plaguing various European countries. Concerns about the outlook for the region were compounded by weak economic conditions and rising inflation. The outlook, particularly in Europe, seems set to remain subdued for some time. In SA, we generally followed the trends evident in other markets, experiencing modest but slowing economic growth and rising inflation. Interest rates and bond yields were generally unchanged, although relatively volatile, during the quarter. The rand weakened by 16% versus the dollar for the quarter, which fortunately should not be particularly inflationary given the generally sluggish economic environment. Against this background, SA equities were weaker during the period as were the industrial shares, with the INDI25 down over 4% (excluding the additional return from dividends)

SIM action
The fund was very active during the quarter. New holdings that were introduced into the fund were AVI and Pick n Pay Holdings. Certain share holdings were added to - the most significant of which were: Steinhoff, Naspers, Medi-Clinic, Remgro, BAT, SAB and Bidvest. On the selling side Mondi, Transhex, Mpact, Netcare, JD Group and Mr Price were sold outright. Holdings in Nampak, Barloworld, Richemont and Sun International were trimmed at favorable prices in the quarter.

Performance attribution
The fund performed reasonably well although the broad weakness in the market impacted overall performance. Increased holdings in certain large cap beverage and tobacco counters assisted performance. Weak performance was evident in some of the global media shares, which has created a significant upside to fair value. Weakness in the rand assisted the Fund's offshore component.

SIM strategy
The short-term outlook remains subdued, but with the retraction in pricing some value is starting to become evident in the industrial market. We construct your fund based on where we see the best value, as measured by the discount the industrial shares trade at relative to their intrinsic value. This is the primary determinant of expected future performance and the basis for constructing the portfolio. We remain cautious on future expected performance given current valuation levels and, as always investors should look to diversify their investments.

Market review
Both developed and developing markets declined for most of the second quarter of 2011 as fears of a possible Greek debt crisis increased and economic growth in the US came out below expectations. The negative sentiment was further fueled by disappointing US labour data, with unemployment increasing from 8.8% in March to 9.1% in May and a sharp fall in pending US home sales in April. Stock markets did, however, recover towards the end of the quarter when the Greek government passed austerity measures, despite growing public opposition. This was a pivotal condition that Greece had to meet before receiving the next batch of funds from the IMF. Bond prices locally and internationally started to factor in a much more muted growth outlook and thus declined into the end of the quarter. SA equities followed the same trend as their international counterparts, but the industrial shares held up slightly better than the overall market, ending slightly ahead for the quarter.

SIM action
We were moderately active during the quarter. No new holdings were introduced, but we added to the Fund's holding in Murray & Roberts, Pick n Pay and Afrox.We didn't sell any shares outright but did trim our holdings in Mondi and Nampak at favorable prices during the quarter. The Fund performed reasonably during the quarter and for the year to date. It benefited from its exposure to selective mid-cap shares that have been out of favor historically, trading at what we would consider to be quite depressed levels. Valuations of these shares remain attractive in our opinion.

SIM strategy
We have started to see the first signs of some consolidation in the market. We construct your fund based on where we see the best value as measured by the discount at which the industrial shares trade relative to their intrinsic value. This is the primary determinant of expected future performance and the basis on which the portfolio is constructed. As a result, we are more cautious on future expected performance given current valuation levels, and as always investors should look to diversify their investments

Market review
The global economy has continued to improve, albeit modestly in the developed world, during the first quarter. Meanwhile, risk aversion has risen in emerging markets as issues in Egypt and Libya took centre stage. Economic disruptions were not only limited to emerging markets but compounded by the tsunami in Japan following the earthquake there. These events initially knocked global equity markets but they seem to be stabilising as time passes. With the risks in emerging markets perhaps heightened - and given the good relative performance of these markets for some time - we saw developed markets outperform emerging markets. Inflationary pressures were not only evident in food but in the rapid rise in the global oil price. Bond prices locally and internationally started to factor in rising inflation, with yields generally ending higher at the end of the quarter. Against this backdrop, SA equities were generally flat for the quarter, as were industrial shares as measured by the INDI25.

What SIM did
New holdings introduced into the fund were Altron and Reunert - both of which broadly participate in the electrical and electronics market. We also added to the fund's holding in Omnia and Bidvest during the quarter. We did not sell any of our holdings outright but did trim our holdings in Mondi, Cipla and Famous Brands at favorable prices.

Performance attribution
The Fund performed favourably, with stock picks that have offered significant value for some time starting to be recognised by the market during last year and into the first quarter. Notable contributors to the Fund's performance included exposure to the mining equipment and paper sectors. The Fund, which is relatively underinvested in the poorly performing construction sector, was protected from significant capital loss.

SIM strategy
After the incredibly strong equity market performance over the past two years, we expect some consolidation in the short-term. We construct your fund based on where we see the best value in the sector, as measured by the discount at which the industrial shares trade to their intrinsic value. This is the primary determinant of expected future performance and thus the Fund's portfolio construction. Given current valuation levels, we are more cautious on future expected performance and, as always, investors should look to diversify their investments.

Market review
The fourth quarter was characterised by continued uncertainty on the economic front in Europe, while the US showed some signs of recovery. Emerging markets continued to experience strong economic growth and capital kept flowing into these markets, with SA also a beneficiary. The MSCI Emerging Market Index rose significantly during the quarter. With the strong economic growth, particularly in emerging markets, inflation began to rise and a number of countries raised interest rates during the period. SA went against the trend, cutting the prime rate by another 50 basis points because of a still relatively benign local inflation environment. Bond market yields, however, started to rise in anticipation of future inflation and it's likely the next move in interest rates will be up, although that is probably some time away. The rand remained strong throughout the quarter, although the extent of its appreciation dissipated. Against this backdrop the INDI25 Index ended the quarter moderately higher but gained more than 20% for the year as a whole, which when you include the additional return from dividends makes for a very respectable return.

What added to - and detracted from - performance
The fund performed well in absolute terms but did particularly well relative to the industrial index because it held certain mid-cap shares that outperformed during the quarter. Notable contributors included exposure to certain value counters that have been out of favor and experienced a change in trading conditions within their industries. Specific sectors that performed well were packaging, mining equipment, chicken producers, and media. Certain retail shares also performed well.

SIM strategy
The Fund was reasonably active during the quarter. New holdings that were introduced to the Fund were Illovo and Medi-Clinic.We added to the fund's holdings in SAB and Naspers. On the sell side, we sold the Fund's Vodacom and Shoprite holdings and trimmed its exposure to Barloworld, MTN, JD Group, Zeder, Woolworths and Richemont.We sold or reduced holdings due to favorable performance during the quarter. After the equity market's strong performance over the past two years, we would expect some consolidation in the short term. We construct your fund based on where we see the best value as measured by the discount at which the industrial shares trade to their intrinsic value. This is the primary determinant of expected future performance and thus the Fund's portfolio construction. We are more cautious on future expected performance given current valuation levels and, as always, investors should look to diversify their investments.