Market Review
All eyes were on the escalating risk of a Euro-zone break up during the second quarter, with markets holding their breath over Greek elections and the possibility of contagion if anti-bailout parties gained ascendancy. This was reflected in yields rising in the periphery countries relative to Germany and a flight of capital from the periphery to Germany. We also saw investor appetite for US bonds, UK bonds, Japanese bonds and the Swiss franc rallying over the period. This culminated in Europe moving towards a shared responsibility for banking by the end of the quarter. Europe is by no means out of the woods, the rules for this shared responsibility have not yet been set and there needs to be a move towards fiscal union over the long-term, but the can has been kicked further down the road in the short term. The global economy also slowed during the quarter, following a slowdown in China, a weak Europe and moderate growth in the US. Global inflation slowed as commodity prices peaked and we saw our own SA inflation moving back into the target range in May. This should keep the Reserve Bank quite relaxed on inflationary pressures - and thus rates are likely to be on hold for longer. The SA economy continues to take its cue from the global economy and we saw the currency weaken as risk aversion increased. SA equities have generally held up better than their international counterparts, with industrial shares (J211) outperforming the overall market for the quarter.

What SIM did
The Fund was moderately active during the quarter. No new holdings were introduced but we added to the Fund's holding in MTN and PPC during the quarter. We felt the market had overreacted to the MTN bribery allegation in Iran, with the share price dropping more than 10%, which provided us with an opportunity to increase our exposure. Meanwhile, we sold Shoprite outright and trimmed our holdings in Murray and Roberts, preferring to get our infrastructure and construction exposure through PPC, which carries less project-specific risk.

Performance attribution
The Fund has performed reasonably well year to date, benefiting from select mid-cap shares and our more defensive holdings such as AVI and British American Tobacco (BAT). On the negative side, our overweight position in construction detracted from performance. We do, however, continue to see value in these construction counters, which have lost favour with investors at the bottom of the construction cycle.

SIM's strategy
Although industrials have continued to outperform relative to other sectors in the market, we feel that this has now largely become momentum driven. We construct your fund based on where we see the best value, as measured by the discount at which industrial shares trade relative to their intrinsic value. This is the primary determinant of expected future performance and the basis for constructing the portfolio. We would be more cautious on future expected performance given current valuation levels, and, as always, investors should look to diversify their investments.

Market review
The market performed strongly in the first quarter of 2012, notwithstanding relatively weak and fragile global economies. Whilst a perceived slowdown in China weighted on markets, there was some recovery in the US and a partial resolution to the Greek debt situation. The global economic situation nevertheless remains fragile and at risk of a protracted and slow recovery. Economic performance in SA remains reasonable, albeit that growth is expected in the 2-3% range. In the quarter there was some slow-down in certain areas whilst other areas remain robust. Nervousness towards the end of the quarter saw mining shares in particular retreat quite significantly, as cost increases outweighed rising commodity prices. The rand also strengthened slightly in the quarter. There was little change in short-term interest rates or in bond prices, reflecting a stable outlook - although there is a risk of slightly higher interest rates on a 12-18 month view. Notwithstanding headwinds in the quarter, industrial shares performed well, particularly relative to the All Share Index. The INDI25 index was up over 9% for the quarter (excluding the additional return from dividends).

SIM action
The fund was fairly active in the quarter. New holdings were introduced, including PPC, Foschini, Aspen and Shoprite. Holdings that were added to, include Afrox and Bidvest. Nampak, Famous Brands, Capital Shopping centre and Zeder were sold outright whilst MTN, Barloworld, SAB, BTI, Steinhoff and others were trimmed. Performance attribution The fund performed well both in absolute terms and relative to the index as the fund is geared towards a number of value situations, which benefited from improving equity markets. Areas that performed particularly well included the global cyclicals - particularly media and IT - and European retail.

SIM strategy
After a strong start to the year, we expect some consolidation for the balance of 2012. Whilst some value exists, which is becoming more stock specific, - risks of a protracted slow-down are still evident. We construct the fund based on a bottom-up view, taking into account the discount of a share price relative to its intrinsic value. This is the primary determinant of expected future performance and is the basis for constructing the portfolio. We remain cautious and would remind investors to always look to diversify their investments.

Market review
2011 has been a year plagued by negative news flow: the US credit rating was lowered, Europe continued to struggle with its sovereign debt crisis, political uprisings led to the so-called "Arab Spring" and there were a number of natural disasters - from flooding in Australia, Brazil and the Northern Cape to earthquakes in New Zealand and a tsunami in Japan. Add to that a weaker currency, rising oil price and increasing inflation and 2011 was a tough year by all accounts.

As we enter 2012, Europe is still not out of the woods with some of its member countries increasingly exposed to the risk of a recession and SA consumer inflation is expected to continue its upward trend for at least the first part of the year. The US is, however, showing signs of recovery, with better jobless claims and manufacturing numbers as well as early signs that the housing market is bottoming out. But economic conditions there remain fragile.

Bond prices locally and internationally continued to factor in a more muted growth outlook, declining in the fourth quarter. SA equities had a bit of a rebound during the quarter, ending the year flat, with industrial shares also producing a strong performance. The INDI25 outperformed the All Share Index.

SIM Action
The Fund was moderately active during the quarter. No new holdings were introduced but we added to the fund's holding in Naspers and Steinhoff. Naspers does not fully discount the value of its holding in Tencent, with the rump of the company (Pay TV and media) trading at a price-to-earnings (PE) ratio of less than 10x. Steinhoff acquired Conforama, the leading retailer of furniture and household appliances in France and also gained control of JD Group by swapping some of its SA assets and cash for JD Shares. This paves the way for a separate listing of the offshore operations, which could see the stock rerate. No shares were sold outright but holdings in SAB and BAT were trimmed as both shares rallied sharply during the quarter.


Performance attribution
The Fund performed well during the quarter and for the year, beating the Industrial Index over both periods. New holdings in food retail and food producers introduced during the year notably assisted performance during the fourth quarter. The Fund also benefited from its exposure to select mid-cap shares, in particular in the chicken producers and IT sectors.

SIM strategy
Despite a lacklustre performance in equity markets over the last year, the short-term outlook remains subdued. We are, however, starting to see value emerging in certain segments of the industrial market. We construct the portfolio by identifying 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. We would be more cautious on future expected performance given current valuation levels and, as always, investors should look to diversify their investments.