It was a difficult quarter for markets, with bouts of volatility. The "risk-off" trade reasserted itself as manufacturing data disappointed (US, Europe and China) and US employment stalled. The situation in the eurozone remains uncertain, though recent actions by the authorities indicate a more coordinated response. The rand sold off as investors dumped emerging market currencies. A positive spin-off of the economic slowdown has been a significant drop in the price of oil, which has contributed to a decline in inflation. As a result, there was a downward shift in local interest rate expectations. The FTSE/JSE ALL Share Index was slightly up (+1.0%), with gains from financials and industrials (benefiting from lower interest rate expectations) outweighing losses from resources (investors fretting over falling Chinese commodity demand).

At quarter end, the Fund had 47.6% effective exposure to domestic equities, 16.1% exposure to cash, 12.8% exposure to SA bonds and 3.9% exposure to SA listed property. The remaining exposure (19.6%) was held in global assets of which 79% was held in global equities. Domestic equity exposure in the portfolio increased slightly over the quarter (predominantly from Cadiz) being countered by a decrease in exposure to property (Investec). Both managers switched from cash to bonds, playing the lower interest rate expectations theme. We are pleased that our balanced managers have been using the flexibility we have given them, and believe in their ability to add value through asset allocation tilts over time.

The Fund has performed well over the past 12 months, producing a return of 9.6% and ranking 39th out of 81 variable equity funds. Cadiz and Investec performed in line with each other, with Cadiz benefitting from good stock selection and Investec adding value through asset allocation. Our offshore allocation was our fund's best performing component, being boosted by the weak rand. Investors should bear in mind that the nature of the balanced space requires a longer time horizon for the benefit of manager skill to come through. Looking forward, we remain cautious with the eurozone debt situation still not fully resolved, but we are encouraged by compelling share valuations provided that the current global economic slowdown does not morph into something more serious, materially denting earnings expectations.

It was a strong quarter for markets, with only mild volatility. The "risk-on" trade came back in full force as US economic data continued to improve (manufacturing and employment), and the Fed committed to keeping rates low at least through late 2014. Markets were further encouraged by eurozone developments the approved a financial rescue for Greece, and the ECB provided a liquidity boost to European banks. Markets chose not to focus on negative news releases such as - Moody's downgraded the credit ratings of Italy, Portugal and Spain, and China growth concerns resurfaced with the official growth target being lowered from 8% to 7.5%. The FTSE/JSE ALL Share Index was a beneficiary of the continued momentum in global markets, up 6.0% for the quarter. Looking forward, we are cautious with markets looking stretched and red flags reappearing in the eurozone, specifically the recent spike in Spanish bond yields above 6%.

The Fund has performed well over the past 12 months, participating nicely in the rally in local equities; it produced a return of 9.8% and ranked 28th out of 74 variable equity funds. Cadiz was our best performing manager, benefitting from excellent stock selection. Investec also performed well, benefitting from its aggressive asset allocation early in the quarter. We are pleased that our balanced managers have been using the high degree of flexibility we have given them, and believe in their ability to add value through asset allocation tilts over time. Investors should bear in mind that the nature of the balanced space requires a longer time horizon for the benefit of manager skill to come through. Domestic equity exposure in the portfolio reduced slightly over the quarter as the managers sought protection in the more defensive assets of cash and bonds. Investec opportunistically increased their equity exposure early in the quarter to participate in the boost from the ECB's liquidity injection into European banks, but then reduced exposure after participating in the rally.

Looking forward, we are pleased with the great start to 2012 for risk assets, but believe that caution is now warranted with stocks trading at less attractive valuation levels and the potential for eurozone woes to come back into the spotlight.

It was a strong quarter for markets, despite bouts of volatility. Markets gained early in the quarter on rhetoric coming out of the eurozone; a debt deal that alleviated the Greek situation was later announced. Focus then turned to Italy as its bond yields spiked. Markets surged late November when the world's major central banks acted jointly to provide cheaper dollar funding to European banks. Indices turned negative when the ECB quashed hopes that it would expand its bond purchase program, but bounced back late in the quarter on positive US data. Markets were further encouraged as the ECB provided European banks with much needed longer term liquidity. The FTSE/JSE ALL Share Index was a beneficiary of the improved market mood, up sharply (+8.4%) for the quarter. Looking forward, while the eurozone continues to threaten to derail the global economy, there are glimmers of hope in the US where its economic recovery appears to be gaining traction. However, until eurozone leaders can find a concrete solution to their debt situation, we expect continued uncertainty and volatility in markets.

At quarter end, the Fund had 47.6% effective exposure to domestic equities, 19.6% exposure to cash, 9.3% exposure to SA bonds and 4.9% exposure to SA listed property. The remaining exposure (18.6%) was held in global assets of which 73% was held in global equities. Domestic equity exposure in the portfolio reduced during the quarter as the managers sought protection in the more defensive assets of cash and bonds. Cadiz was primarily responsible for this move, with a large shift from resources (typically geared to the market) to industrials and financials.

The Fund had a strong quarter with a return of 6.2%, participating nicely in the run in local equities; it was ahead of the median peer by 1.3%. Cadiz was a big contributor, aided by its aggressive positioning during the quarter. We have given our balanced managers a high degree of flexibility, and believe in their ability to add value through asset allocation tilts over time. We are pleased that they have been using this flexibility, and we expect them to continue doing so for as long as market uncertainty prevails. Investors should bear in mind that the nature of the balanced space requires a longer time horizon for the benefit of manager skill to come through. Looking forward, we are hopeful that 2012 will be a better year for risk assets with the issues facing the global economy already on the table (and presumably mostly priced in) and equities still at attractive valuation levels.