Market Review
Developed world economic growth appears to have stalled after two years, with credit growth dipping and unemployment remaining stubbornly high. The anxiety regarding a potential Greek exit from the Euro-zone in June, and the potential the spill over effects to Spain and Portugal, pushed US borrowing costs to March 1946 levels of around 1.6% and to all-time lows for Germany and the UK. Investors are in effect paying sovereigns (in real terms) to safeguard their money, with two-year German yields hitting zero per cent. Some calm in global markets was restored when Greece elected a new pro-Europe government and Spain finally received a €100bn bailout for its bank rescue fund. But bankers remained out of favour, with JP Morgan recording large credit derivatives losses and Barclays fined for manipulating the Libor rate. The JSE SWIX index delivered a total return of 1% this quarter. In dollar terms, the JSE was in line with global equities (-5%) and outperformed emerging market equities (-9%). Financials continued to lead the pack this quarter, delivering a 5% return. Financial and industrial stocks continue to perform well, up 3% and easily outperforming resources, which were down 4%.

What SIM did last quarter?
It was a difficult quarter for the Fund, which slipped 1.7%. The largest position in the fund remains MTN at 7%. MTN has been adversely impacted by the allegations of fraud relating to its Iranian operations. Notwithstanding this, the stock was up 4% in the quarter, with the company reporting solid final results and adjusted earnings up more than 40%. The stock trades at an attractive forward PE of 10x and a forward dividend yield of 7%. Anglos is now our second largest exposure in the fund. The stock declined close to 5% during the quarter and is trading on a forward PE of 7x and a price-to-book of 1.1x; a level last seen during the global financial crisis in 2008. We curtailed our investment in Sasol to just over5% of the fund as we found better value in Anglos. The Brent oil price has pulled back from a peak of $126/barrel to fall below $90/barrel as tensions in the Middle East abated and fears of a global slowdown weighed on the price. What added to, and detracted from, performance The resource sector continued to suffer severe pressure as concerns about Chinese growth prospects lingered and this was compounded by the inability of the European leaders to take decisive action relating to the debt problems. On the positive side, the fund benefitted from the payment of the anticipated special dividend from Old Mutual, which of the anticipated special dividend from Old Mutual, which delivered a total return of 14% in the quarter. As risk was taken off by market participants, defensive stocks were once again in favour. Our 5% holding in British American Tobacco delivered a solid 9% total return in the past quarter.

SIM Strategy
From a long-term, fair value perspective, we believe the stock market is now trading close to its fair intrinsic value. The resource shares continue to diverge from the rest of the market as investors are uncertain whether the globe may indeed plunge once again into recession. In an environment of great uncertainty, the best strategy to protect capital is to purchase blue chip stocks at depressed valuations and to avoid the stocks that have benefitted from strong momentum and are trading at extremely demanding multiples on peak earnings levels.

Market Review
The JSE SWIX index delivered a total return of over 7% during the quarter. In dollar terms, the JSE lagged global equities (+12%) and emerging market equities (+14%). Financials led the pack this quarter with a 13% return; banks (16%) outperformed life insurers (14%) but the real star was the short term insurance sector with a 22% return. SA industrials continued to perform well (+10.5%) with construction (21%) and industrial transport (24%) leading the way. Resources stocks, down 3%, were heavily hit by negative news around Chinese growth and fears about contagion of the sovereign debt issue in Europe. Gold miners suffered a 15% slump while Forestry and Paper stocks were up close to 24%.

What SIM did last quarter?
This was another solid quarter for the fund with performance up 6.3%. MTN is now the largest holding in the fund at 6.7% but was down 6% this quarter. MTN was adversely impacted by allegations relating to its Iranian operations by Turkcell, served in a US Court. Iran accounts for just above 10% of our value of MTN and we have yet to establish whether there are any grounds for the allegations. We have been adding to our position into weakness with the stock trading on a forward PE of under 11x and a prospective dividend yield of over 6%. We also upped our stake in Naspers to over 4.5% of the fund. Naspers' stake in Chinese internet gaming company Tencent has grown to such an extent that it now accounts for over 80% of the market cap of Naspers (if we translate the investment at the traded market value of Tencent in Hong Kong). While it is difficult to value such a technology business, where there is always a risk that a new invention will render the business model obsolete, we feel that even by valuing the investment very conservatively, there is a sufficient value in the Pay TV and other businesses of Naspers to make the counter very attractive. We curtailed our investment in British American Tobacco (BAT), which now makes up less than 5% of the fund. BAT was up 49% in 2011 and has been a great investment for the fund. However as the stock approached our fair value, we felt it prudent to lighten some of our position as the stock is now on an historic PE of 20x with the dividend yield at just under 4%.

What and added to - and detracted from - performance
We benefitted from our position in Barloworld, which was up 35% in the quarter, which is enjoying record demand of yellow equipment from mining clients. Our 5% stake in Old Mutual continued to perform well during the quarter as the combined payout of its final ordinary dividend and special dividend. Our 4% in Bidvest also contributed positively after the stock delivered a 17% return in the quarter. The resources sector came under pressure after a strong start to the year. Concerns about a hard landing in China saw a massive sell off in the diversified miners, especially Anglo American (-4%). Our second largest position, BHP Billiton, also weighed on the fund. Billiton was only up 1% with the company indicating that the rate of growth in demand for iron in China would slow down from the rapid pace seen over the past decade.

SIM Strategy
This fund leverages off the strength of the research capability of fourteen equity analysts at SIM. We believe that our breadth of coverage of stocks, which extends to the mid and small capitalisation sectors, provides us with a greater opportunity to uncover under-researched and under-valued investments. We apply our pragmatic value philosophy when valuing all counters which enables us to compare stocks across industries on a consistent basis. We are re-assured when businesses in which we are invested, are able to dispose of assets at prices above their fair value and re-allocate capital away from suboptimal businesses, even if it means shrinking the size of their businesses. As value investors, we engage with company management in order to encourage them to make such courageous decisions. From a long-term, fair value perspective, we believe the stock market is now trading close to its fair intrinsic value. Recently, resources shares have diverged from the rest of the market as investors panicked that the globe may indeed plunge once again into recession. We are fully cognisant of the risks that a Chinese slump or a European led growth slowdown would have on commodity demand. We have therefore focused the portfolio on blue chip resource stocks which trade at attractive single-digit multiples and would be able to withstand a severe demand shock.

Market Review
2011 was a tough year for equity investors with the MSCI World Index down over 9% in US dollars. In SA, the JSE SWIX delivered a lackluster total return of 4% in 2011 in rands. While resource counters lost ground, defensive domestic Findi stocks helped buoy the local bourse somewhat. The JSE, which lost 17% in dollar terms, still handsomely outperformed the other BRIC countries (Brazil, Russia, India, China), which lost more than 20% in US dollar terms.

What SIM did last quarter?
It was a solid quarter for the Fund, which gained 9.5%. Anglo American, the largest holding in the fund, was up almost 8% during the fourth quarter after it announced the sale of half of its Chilean copper assets to Mitsubishi for $6bn - a lot higher than the price at which State owned Chilean mining company Codelco was planning to bid for it. The Fund's second largest holding, Sasol, increased 15% on the back of a Brent oil price that closed the year above the $110/barrel mark on fears of supply disruptions in the Middle East. Old Mutual, the largest financial stock in the fund, soared 31% in the final quarter of the year on the news that it had disposed of its Nordic assets for a €2.1bn in cash, enabling it to pay down its offshore debt and declare a special dividend this year.

What added to - and detracted from - performance
The resource sector was the worst performing sector last year. Concerns about the possible onset of a global recession saw a massive sell off in the diversified miners like Anglo American (- 14%) and BHP Billiton (-11%). This can be explained by a 25% decline in the copper price, one of the key industrial metals, from its February peaks. On the other hand, a strong oil price, driven by strong Asian demand and instability in oil producing countries, meant that Sasol (+16%) outpaced the Gold Index, up only 7% despite the rand gold price moving up 33%. On the positive side, the third largest holding in the fund, British American Tobacco delivered a solid 12% return during the last quarter (49% over the past year). This company has grown dividends in sterling at 15% annually over the last decade. In the future, we expect its margins to continue to expand and its payout ratio to increase, which should support dividend growth Many of our core investments have benefitted from companies degearing and shrinking in size.

SIM strategy
This fund leverages off the strength of the equity research capability at SIM. We believe that our breadth of coverage of stocks which extends to the mid and small capitalization sectors provides us with a greater opportunity to uncover under researched and undervalued investments. We apply our pragmatic value philosophy when valuing all counters, which enables us to compare stocks across industries on a consistent basis. We are reassured when businesses in which we are invested are able to dispose of assets at prices above their fair value and reallocate capital away from suboptimal businesses, even if it means shrinking the size of their businesses. As value investors, we engage the management teams to encourage them to make such courageous decisions. From a long-term, fair value perspective, we believe the stock market is now trading close to its fair intrinsic value. Investing in SA equities has proven especially difficult over the past year given the extreme volatility and negative sentiment that lead to the downdraft in quarter three. After a year during which returns have been poor, it is easy to get despondent about investing in equities. But bear in mind that at the bottom of a cycle prospects invariably look bleak and investors tend to focus on downside rather than upside risk. This is when we believe it is most important to take a longer term view. Portfolio Manager BSc (Econ), MSc (Econ), MBA, CA (UK)