Market Review
An improvement in risk appetite saw the US equity market rocketing 15% during the quarter and 32% over the last six months - the biggest advance since a 42% six-month rally in 1975. European markets also posted the best quarterly returns in a decade. Emerging markets were even more impressive, with stocks up over 100% from their November 2008 lows. We feel that the current rally is justified by the normalisation of credit markets, with most indicators of liquidity and credit in the developed world back to pre-Lehman levels as a result of successful policy actions, global restocking and the expectations of better global growth, as per the latest IMF revision to 3,2% for 2010. Commodity prices, which have advanced 69% this year on the back of strong Chinese demand, posted another solid quarter. But some of the benefits were offset by the rand's 20% or so appreciation against the US dollar this year. The JSE improved by 13% in the last quarter, with industrial mid-cap stocks delivering the best performance. Interest rates have been slashed by 450 basis points this year and at 6,4% inflation is rapidly falling towards the Reserve Bank's target band. Since the beginning of the year, the All Share has rewarded investors who remained invested, delivering a 16% return.

What SIM did
The Fund gained 13% during the quarter after a similar performance the previous quarter. Anglo American remains our largest holding and we used the exuberance surrounding a potential merger with Xstrata to take some profits. We also introduced Barloworld into the portfolio, a company that is trading well below book value.

What detracted from and to performance
Imperial was one of the main contributors to the performance of the Fund, advancing by some 37% during the quarter on the back of excellent results, which saw the group benefit from the disposal of its more capitalintensive businesses. On the negative side, our large exposure to MTN hurt us as the protracted talks with Bharti Airtel of India meant that the stock did not advance in line with the strong equity markets, as investors awaited details of the transaction.

SIM Strategy
This fund reflects the best views of the equity unit trust portfolio managers at SIM and holds a maximum of 20 stocks. We believe this portfolio provides the best of both worlds in terms of representing our investment ideas aggressively, while also providing adequate diversification. The Fund's largest holdings are companies that are leaders in their respective sectors but their valuations may have been impaired by shortterm factors. We hold close to 10% in Anglo American, which is being courted by Xstrata for its tier one mining assets. We also have a large MTN holding, which is the leading African cellular provider with over 27m subscribers in Nigeria - well head of its 17m customers in SA. Remgro is another core holding with a portfolio of excellent industrial assets and a significant holding in RMB Holdings. With the strong run in equity markets over the past six months we believe equity markets are now closer to fair value, but equities are still our asset class of choice over the longer term. ideas aggressively, while also providing adequate diversification. The Fund's largest holdings are companies that are leaders in their respective sectors but their valuations may have been impaired by shortterm factors. We hold close to 10% in Anglo American, which is being courted by Xstrata for its tier one mining assets. We also have a large MTN holding, which is the leading African cellular provider with over 27m subscribers in Nigeria - well head of its 17m customers in SA. Remgro is another core holding with a portfolio of excellent industrial assets and a significant holding in RMB Holdings. With the strong run in equity markets over the past six months we believe equity markets are now closer to fair value, but equities are still our asset class of choice over the longer term.

Market review
Global equity markets soared this quarter as risk appetite returned. Credit and liquidity spreads returned to pre-Lehman levels; a sign that capital markets have begun functioning again. The huge fiscal and monetary stimulus engineered around the globe started to filter through to the lead indicators, triggering a bounce in equity markets. Sectors that were hit the hardest during last year's sell-off rebounded most strongly, with emerging markets posting total returns of 35% compared to developed markets' 21% increase. The S&P 500 in fact posted its best quarter for over 10 years. SA delivered a total return of 31% in dollars, which lagged other emerging markets. The rand was also one the world's best-performing currencies, gaining 23% to the dollar during the period.

In SA, the economy ground to a halt with growth revised down to a decline of more than 1% for the year. Manufacturing production remained under stress and the availability of credit dried up. Demand remains under pressure as households cut spending, with falling house prices contributing to the negative wealth effect. After cutting rates by 450 basis points since December 2008, the Reserve Bank held rates steady in June. The oil price posted its largest quarterly gain since 1990, ending the quarter close to $70/barrel (+41%) assisted by a weaker dollar and evidence of 'green shoots' of economic recovery coming through. Base metals also rallied strongly on the back of Chinese re-stocking.

The All Share was up 9% in rand terms. The industrial sector led the charge, with a 14% return for the quarter. Financials were a close second, up 12%, with life insurers posting a notable 21% return. Resources were the laggards, dragged down by gold shares (-16%) and the oil sector (- 1%).

What SIM did
The Fund gained 13% during the quarter, clawing back the decline experienced at the beginning of the year. We took some profits in MTN as the company entered merger talks with Bharti, India's leading cellular provider, to create the world's third-largest wireless group with over 200m subscribers. Anglo American is now our largest holding and the company has been approached by Xstrata with a view to a merger. We also upped our exposure to Mondi, which is trading well below book value.

What detracted from and added to performance
Our large holding in Anglo American benefited the Fund as commodity prices rebounded, with copper increasing by 25% in dollars during the quarter, and news of a potential merger with Xstrata highlighting potential hidden value in the company. Our exposure to banks also contributed positively as the 450 basis point decline in interest rates to date is expected to lead to a reduction in bad debt charges. On the negative side, our exposure to Anglogold hurt us, with the rand gold price falling some 16% on the back of a stronger local currency.

SIM strategy
This Fund reflects the best views of the SIM equity unit trust portfolio managers. We invest in a maximum of 20 stocks to best capture our views. We consider the extreme volatility in financial markets as an opportunity to maximise returns for our investors, especially where bluechip stocks have been sold off indiscriminately. The Fund's largest holdings are companies that are leaders in their respective sectors but whose valuations may have been impaired by short -term factors. We hold over 10% in Anglo American, which is now being courted by Xstrata for its tier-one mining assets. We also have a large holding in MTN, which is engaged in talks with Bharti, the leading mobile player in India, in order to create a true emerging-market cellular giant. While we will only support a merger where appropriate valuations are being applied to assets, we believe such corporate activity is testimony to the fact that our investments constitute attractive targets. The recent equity rally has reduced the range of opportunities in our investment universe but nonetheless we continue to believe equities remain an attractive asset class for the long-term investor.

Market review Global equity markets sold off violently by some 25% at the beginning of the year as credit conditions tightened on the back of fears that developed world governments were not committing sufficient fiscal resources to support their banking systems. A negative feedback cycle was emerging whereby fear in credit markets was translated in a sell off in equity markets. It is only after the US Treasury announced the Geithner-Summers Plan to revitalize the US banking system and the G20 summit generated a headline grabbing $1.1 trillion package to combat the worst economic crisis since the Great Depression that we saw markets recover in March. The broad-based equity market recovery saw global equities end the quarter down a less severe 13% by the end of the quarter as global risk appetite improved. Emerging markets were the best performers, ending the quarter almost flat. The Chinese market was the star performer, up 30%, with the Indian market closing the quarter slightly down. Developed countries were broadly negative, with the S&P and FTSE down 11%, Continental Europe down almost 15% and the Nikkei off 7%. The JSE was down 4% for the quarter, with resources the best performers, up 2%, financials down 7% and industrials 9% lower. The South African economy has suffered a sharp economic slowdown, dragged down by the rest of the world. Manufacturing output in February plunged 15%, signaling that the economy is teetering on the brink of its first recession in 17 years. The Reserve Bank finally changed tack and slashed interest rates twice by 100 basis points during the quarter. One encouraging sign is that the rand strengthened after initially weakening by 12% during the quarter against the dollar.

What SIM did
The fund declined by over 6% in the quarter with the JSE experiencing two poor months in January (-4%) and February (-10%) before making up some ground in March (+10%). We introduced Anglo American to the portfolio as the stock has been depressed due to funding concerns and they skipped their final dividend in 2008. We upped our exposure to MTN as the stock got hurt by concerns about its exposure to Nigeria. We added to Shoprite on weakness as we believe the company will continue to perform strongly even as food inflation softens.

What detracted from and added to performance
We benefited from our exposure to gold and platinum, which performed well during the quarter, with Anglogold Ashanti up some 37%. However, our exposure to banks has not yet paid off, despite the Reserve Bank slashing rates by 200 basis points. Anglo American declined by 23% during the quarter as it skipped its final dividend and was also slow to address funding concerns. This was subsequently partly addressed by offloading its gold exposure and raising a bond issue.

SIM Strategy
This fund's portfolio reflects the best views of the unit trust portfolio managers at SIM. The fund dynamically reflects a maximum of twenty stocks that best capture these views. As demonstrated in the last quarter, market volatility has provided opportunities to add to our exposure to high quality large-cap stocks especially in the industrials and resource universe. The largest stock in the portfolio remains MTN, which constitutes over 10% of the portfolio. In the resource area, we have almost 10% of the portfolio in Anglo American. We feel that the 24% drop in the share price in the quarter is not vindicated, especially given that Anglo American has disposed of assets and embarked on a bond issue. While we did well with our exposure to Anglogold Ashanti (+37%) and Impala Platinum (+17%), we feel that there is considerably more upside in Anglos. Our position in banks, especially in Nedbank, which is our third largest position, has yet to pay off. Nedbank was down for the quarter but the valuation is very attractive on a price to earnings (PE) ratio_of 6 times. We believe equities are attractively priced at the moment and will benefit the patient investor in the long term.

Market review
The year 2008 will be remembered as the year when the global financial system suffered one of the worst financial crises in history, as the US, Europe and Japan experienced the first simultaneous contraction since WW II. Globally, equity markets had a torrid time, ending the year down over 40% with $30 trillion in value wiped out. Emerging markets fared even worse, losing 54% in dollars. Fear gripped US markets, which ended the year 38% lower - the biggest decline since the Great Depression. Volatility indices peaked at a record 80 in November before ending the year at half that level. The US experienced its largest ever bankruptcy with the failure of Lehman Brothers; the biggest bank failure (Washington Mutual), and the disintegration of Madoff's $50bn Ponzi scheme. Globally, central bankers have acted in a coordinated fashion, slashing interest rates and putting together various bailout packages to thaw credit markets
The JSE ended the year down over 25% in what was one the sharpest reversals of fortunes ever witnessed. Perversely the All Share Index was comfortably up some 15% until late May before diving alongside global markets. In South Africa, resources were the losers this year, down over 30%, with financials down 22% and industrials off a less severe 18%. The commodity boom turned to bust with growth concerns driving the commodities index down over 36% in the last six months. Oil led the decline down, falling almost 60%, while the gold price posted its eighth straight annual increase.

What SIM did
The SIM Top Choice Fund was down by -22% this year, which is obviously disappointing after being up over 28% in 2007. Though it is probably cold comfort, the fund did outperform the All Share Index because we stuck to our fundamental view that resource shares were overvalued. At year end, our largest holding was Nedbank, which accounted for 9% of the fund. Nedbank was down 7% during the quarter. We also hold a large position in RMBH. Our favoured insurance play remains Discovery, which was up 20% in the last quarter of the year.
Our second largest holding was Remgro, which was our largest holding the previous quarter. The diversified industrial group unbundled its BAT stake in the quarter and the fund decided to dispose of the BAT shares while retaining Remgro, where we see more upside. The stock is up some 25% since the BAT unbundling in late October. Anglogold Ashanti, our third largest holding, was up by over 30% during the quarter. Gold shares rebounded as investors fled to the safe haven of the "barbarous relic" and, in addition, Anglogold management restructured their hedge book in order to expose the company more directly to the gold price.
We remain positive on food retailers and our faith in Pick 'n Pay management was rewarded, with the stock up 22% in the last quarter. Likewise we continued to hold Shoprite in the fund with the stock up 13% in the last quarter of the year. Shoprite has consistently been one of the largest holding in the fund and was up 23% in the past year. We used the sell-off in resource shares to increase our holding in the quality stocks. We now own close to 8% in BHP Billiton (the stock was down -6% in the quarter) and 6% in Impala Platinum, which was sold off aggressively in the quarter (down -19%).

SIM strategy
As the world is gripped by fears of a global recession and risky assets are being sold off indiscriminately, we are finding that real value is emerging from the stock market. The portfolio is now being repositioned to increase our holding in blue-chip stocks with predictable cash flows and which are now trading at low valuations. This should benefit unit holders over the longer term. "Be fearful when others are greedy and greedy when others are fearful" as Warren Buffett said.