Market Review
This was the quarter where the raft of negative macro news finally led to capitulation by equity investors worldwide. On the JSE, the SWIX fell 4%, with the worst of the selloff in September. SA equities underperformed bonds, which initially experienced a strong rally, with 10-year yields peaking at close to 7.5% before weakening towards the end of the quarter. Resources (down 10%) once again bore the brunt of the sell off, with global growth concerns impacting on global cyclical stocks. Industrials (-3%) were the best performers, helped by strong performances by SABMiller (+8%), Healthcare (+2%) and Food Producers (+3%). Financials (-3%) also lost ground as the market started fearing a repeat of the financial crisis and interbank liquidity in Europe dried up.

What SIM did
The Fund underperformed during the third quarter, falling close to 5% year to date. The biggest holdings in the Fund, which each comprise more than 10%, remain Sasol, Anglo American and British American Tobacco. Sasol fell 6% during the quarter, while the rand oil price gained 13%. In the case of Anglo American, the share price declined 18% during the quarter, while the in rand terms the copper price only declined 8%. British American Tobacco (BAT) bucked the trend by advancing almost 16%, in line with the depreciation in the rand. We used the indiscriminate sell off in the quarter to reshuffle the portfolio. We exited some of the mid-cap stocks that had held up relatively well - namely Omnia and Afgri - to introduce blue chip, large caps that were sold off aggressively. Omnia declined 4%, while Afgri fell 12% during the quarter. On the other hand, we introduced BHP Billiton for the first time into the portfolio after the stock was severely punished in the global sell off. Billiton declined close to 18% during the quarter. We believe that Billiton's valuation is attractive on a forward PE of 8 times and more than discounting the fall in commodity prices. The Fund's 20-stock portfolio currently trades on a forward PE of 9 times and an attractive dividend yield of 3.5%.

What added to - and detracted from - performance
The Fund's third largest holding, BAT, delivered a solid 16% return during the quarter. 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. If we combine this positive outlook with our expectation that the rand will depreciate against sterling over the long term, this stock should deliver superior returns in future. At the beginning of July we also had news that Bidvest had received and rejected unsolicited offers for its international food services distribution business. Bidvest has been a core holding of our fund as we felt that the international business was not properly valued by the market. The offers received confirmed this. We hold almost 7% of the fund in Old Mutual, which slumped 9% during the quarter. Management has de-risked the business by selling their US life business and we believe that the debt reduction effort will also contribute to greater balance sheet resilience. It is noteworthy that Nedbank currently makes up about R6 of the Old Mutual share price and that at the current market price you are getting the SA insurance asset and Mutual market price you are getting the SA insurance asset and Mutual and Federal at a discount. The market is therefore putting a negative value on the offshore businesses, which appears penal.

SIM strategy
This fund reflects the best views of the equity unit trust portfolio managers at SIM. The fund holds a maximum of twenty stocks. We believe that this portfolio provides the best of both worlds in terms of representing our investment ideas aggressively while providing adequate diversification. The largest holdings of the fund are made up of companies which are leaders in their respective sectors but where valuations are below our estimate of fair value. The fund has now a bias towards large caps, which have been severely sold off during the past quarter and many of our holdings are made up of businesses likely to benefit from a weaker rand and are likely to outperform when investor confidence recovers.

Market Review
It was another volatile quarter for equity markets, with some potential tail risk events causing wild swings in global sentiment. Nevertheless the quarter came to a strong close after Greece passed a €28bn austerity package, ensuring the country could avoid sovereign default by accessing bailout packages. This boosted the JSE, which rallied by 4% at the end of the quarter to end the period flat. We also underperformed global equities, with developed markets continuing to outperform emerging market equities. Within the emerging market universe, South Africa was down -2% in dollars, underperforming other emerging markets (- 1%). From a sector perspective, the financial and industrial sectors were positive during the quarter but global turmoil impacted the resources adversely and the sector closed down almost 6% for the quarter. The gold sector (-13%) was the worst performing sector as speculative investors headed for the exit as soon as the gold price broke the psychological barrier of $1500 an ounce.

What SIM did
The Top Choice Fund moved sideways during the quarter, which aggregates to close to 3% year to date. Anglo American remains our largest holding and we have increased our position in Sasol to almost 10%. British American Tobacco remains our third largest holding, comprising close to 8.5% of the portfolio. The Fund is overweight financial and industrial stocks relative to resources. However, given the strong performance of industrials and the underperformance of resources in the past quarter, we have upped some of our resource positions - especially Anglo American and Sasol - funded mainly by a reduction in industrial stocks. We introduced Investec Plc as one of our top 10 holdings during the quarter. Investec has managed to survive the credit crunch but its UK private banking operations were hard hit by the UK and Irish property slump. Thus returns have come under pressure, declining from 26% at the peak to just over 11% currently. UK private banking is now loss making and the share is trading at close to book value. However, overall capital adequacy of the group is close to 17%, which is well in excess of targeted levels of around 10%. While we recognise activity levels are still subdued and that the regulatory environment remains uncertain, we believe that the valuation already discounts these uncertainties. In the mid-cap space, we added to our position in chemical and fertilizer company, Omnia. Omnia earnings have ratcheted up from 120c to 767c over the past year, exceeding market expectations. The group is benefitting from higher volumes, driven by strong demand for mining and agricultural commodities and higher nitrogen prices, which bodes well for the forthcoming year. They also have funded a new factory which comes into production in 2013.

What detracted from and added to performance
The third largest holding in the fund, British American Tobacco, delivered a solid 7.4% return this quarter. Our second largest holding, Sasol, pulled back 8% this quarter. However, we believe that the share price has been discounting an oil price of under $70/barrel when the spot price is trading above $110/barrel - which we see as a satisfactory margin of safety. Pick n Pay Holdings slumped 10% during the quarter after reporting dismal numbers but we are confident that management is making the right strategic moves to restore future profitability.

SIM Strategy
The Fund's largest holdings are in companies that are leaders in their respective sectors but valuations are below our estimate of fair value. The JSE is fairly valued and investors should expect muted returns from this point onwards.

Market Review
South African equities underperformed global markets during the quarter, with developed markets outperforming emerging markets on the back of solid economic data. The JSE shrugged off the first quarter geo-political turbulence and delivered a total return of more than 1%, with the Top 40 stocks outperforming the rest of the market, led higher by resource-related shares. Financials ended the quarter ahead, while industrials moved sideways. Some of the best performers during the quarter were resource-related stocks, like Mondi, while Old Mutual led the way in the financial space, rebounding by 15% during the quarter. On the downside, Construction stocks were the underperformers after a Competition Commission enquiry on bid rigging and price fixing by construction companies was announced and the companies released trading updates, indicating that the profitability of their businesses would be considerably lower after the World Cup. As a result, the share price of construction heavyweight, Murray & Roberts, declined by some 34% and PPC by more than 28% during the quarter. Foreign investors continue to exit our market and were net sellers of equities.

What SIM did
The Fund gained more than 2.8% in the first quarter, which aggregates into a solid 15.7% over the past year. Anglo American remains our largest holding and we have increased our position in Sasol to over 8.7% as the oil price topped $100/barrel. We also upped our holding in Old Mutual after the share dramatically underperformed at the end of 2010. Old Mutual is now the third largest holding in our fund, comprising 8.5% of the fund. We upped the Fund's exposure to financials, which now make up 26% of the portfolio, while reducing our exposure to Industrials, which was the best performing sector in 2010. We maintain a relatively high weighting in small caps, which make up approximately 12% of the fund.

What detracted from and added to performance
Our largest holding, Anglo American, continued to outperform the All Share Index this quarter, advancing by over 2.5%. The 2010 results saw a resumption of the dividend and a renewed focus on growth, with projects worth $16bn planned for the next three years. Anglos continues to benefit from the upswing in commodity prices and is now trading on a forward price-to-earnings (PE) ratio of less than 10 times. Old Mutual contributed positively to performance after selling off the previous quarter on the news that HSBC had pulled out from a potential deal to buy subsidiary, Nedbank. Old Mutual was also plagued by poor news flow surrounding the sale of its problematic US life operations. More recently, the regulator approved the sale of US life, which paves the way for the sale to go through. The market is becoming more confident that Old Mutual will achieve its Stg1.5bn debt reduction target for next year and consequently rerated the stock. British American Tobacco also outperformed the market during the quarter after a disappointing performance in 2010.

The banks underperformed the market, with ABSA and Standard Bank both losing ground during the quarter after reporting lackluster results. Standard Bank reported a decline in earnings, with profits in Africa falling by 38% and its international operations (outside of Africa) delivering almost no profits for the year. Overall trading profits were down 21%, with the strong rand detracting from the trading profits generated by the African and other emerging market businesses. There were some specific issues, such as a R1bn provision required against structured deals in Asia and a R300m specific provision for control failure in one of the African operations. We believe Standard Bank is undervalued at current levels.

SIM Strategy
The Fund increased its exposure to financial stocks, especially Old Mutual, where we feel that there is more upside to intrinsic value as management reduces its large debt burden. The JSE is now fully valued and investors should expect muted returns from this point onwards.

Market Review

Last year can be characterised as one where policy makers steadied the global recovery and side stepped flash panics about European sovereign credit issues, Chinese inflationary pressures and the US political reformist agenda. Strong economic growth numbers and an earnings recovery story saw global equities post solid 10% growth last year, with emerging markets leading the pack, delivering a 16% annual return in dollars. Aggressive policy action continues to support risky assets in the developed world. South Africa was a star performer, delivering close to a 31% dollar -denominated return last year in large part due to the strong rand, which boosted an already excellent 19% rand return for the year. The JSE experienced a strong close for the year, with the All Share Index advancing some 9% in the last quarter, driven by R17bn of foreign buying. Mid- and small-cap stocks outperformed large caps, assisted by the strong currency and lower interest rates. Sector-wise industrial stocks were the top performers (24%), while resources and financials posted disappointing performances of just over 10%. General retailers led the pack, advancing 62% for the year, while Construction (+4%) and the Platinum sector (+7%) were the laggards.

What SIM did
The Fund gained 19% during 2010 and a solid 7% in the final quarter. We increased our position in Sasol to more than 7% as the oil price advanced to over $90/barrel. We also upped our holding in Mvela Resources, where we believe the resolution of the dispute with Khumama Platinum will unlock value through the sale of their Goldfields shares. We switched some of our insurance exposure into banks, especially Standard Bank, after the share price was depressed by negative sentiment around the retrenchment of 1 500 staff. The fund upped its exposure to resources, which comprise28% of the fund. We maintained our large financial stock exposure but started cutting back on our small-cap industrial exposure, where shares have reached their fair value after a strong run in the market.

What detracted from - and added to - performance
Our largest holding, Anglo American, was one of the best performers in the fund last quarter, delivering a 21% return. Anglos benefited from a sharp rally in commodities. Anglo's largest project, an iron mine in Brazil, is progressing well after key licences were secured last quarter. The Fund's star performer was Barloworld (5% holding), which advanced more than 43% during the last quarter. After underperforming the market for the first three quarters of the year, Barloworld outperformed the All Share Index by 31%, which is a typical example of a deep value share delivering returns as a result of management actions. Management disposed of its underperforming Scandinavian operations and increased their stake in the Siberian business, which has great growth potential. In addition, their key business, Caterpillar, is likely to increase its market share locally and in Africa once the parent company acquires equipment rival, Bucyrus. To the downside, Old Mutual declined 16% during the quarter after the announcement that HSBC had decided not to pursue the Nedbank acquisition. This was disappointing as the stock had moved up strongly the previous quarter as management appeared to be addressing the group's offshore debt burden. Nevertheless, we still feel there is a lot of upside potential in the stock as it continues looking for a buyer for its problematic US life business and is considering listing part of its US asset management business to raise funds to reduce its offshore debt.

SIM Strategy
The Fund's largest holdings are companies that are leaders in their respective sectors but where valuations are below our estimate of fair value. We hold over 10% in Anglo American, which owns some of the best mining properties around the world, including a controlling stake in Anglo Platinum. We also have a large holding in British American Tobacco, which is trading at a forward price-to-earnings (PE) ratio of 11x and a forward dividend yield of close to 6%. Any currency weakness would also benefit this rand hedge stock. The fund has a larger exposure to financial stocks, where we feel that there is more upside to intrinsic value. After the JSE All Share advancing close to 70% from its March 2009 lows, 2011 is likely to be a more difficult year with more muted returns for equities