Market review
The first quarter of the new year began on a positive note - continuing the trend we saw established in 2012 - as investors anticipated a recovery in the US and China and elsewhere. The recovery was, however, by no means assured, with retail sales data improvingin the US and China's change of presidency providing continuity in that region, but with growth overall less certain. In the UK, economic conditions remain fragile and a recovery in Europe was delayed by the failure of the Cypriot banking industry, which resulted in the bailing out of investors within the banking deposit base. Fortunately contagion was averted but it again highlightedhow fragile the whole banking industry is across Europe, while economics conditions show little sign of improving. In SA, the PMIdata slipped in March and pointed towards a slowing manufacturing environment. Anecdotal evidence also points towards a slowing consumer market, with easing economic growth and rising cost pressures impacting on consumption. A marked weakening in the currency during the period is also likely to put upward pressure on prices going forward. The rand has now depreciated by more than 20% over the past 12 months versus the dollar. Industrial counters reporting in the first quarter were generally in line with expectations but warned that prospects were deteriorating. With growth modest, interest rates were unchanged during the quarter, as were bond yields. The industrial counters most exposed to a weakening rand performed best. During the fourth quarter, industrial shares performed well, with the INDI25up more than 5.8% for the quarter excluding the additional return from dividends.

SIM action
The Fund made no purchases or sales during the quarter and is considered well positioned in the current environment so no changes to the portfolio were necessary. Performance attribution The Fund performed well during the period as it was positioned for a weakening rand, which happened during the quarter, benefiting both rand-hedge counters and domestic counters positively geared to a weakening rand. Many industrial counters have some form of offshore strategy but the companies with the largest exposure to international markets benefited most. The Fund's small direct offshore exposure also performed well, particularly in rands.

SIM strategy
For some time now, industrial shares have performed well. It is considered unlikely that past conditions which assisted with this outperformance over the past four years will repeat themselves. The industrial shares held in the Fund, however, consist of companiesin a range of different industries, and so there are always opportunities to invest. Valuation levels do, however, remain elevated. We seek out the best opportunities for you within the current environment by the detailed fundamental work we do. On balance we remain cautious and, as always, remind investors to diversify their investments.