Most markets started the quarter strongly on continued global central bank. However, markets became jittery when the Fed announced it could begin phasing out its bond buying this year; US government bond yields shot up (with global bond yields following suit), and the US dollar strengthened - in the process, commodities struggled and investors lost appetite for emerging market currencies. On the local front, the rand weakened with foreign investor confidence dented as mining strikes / union clashes continue amidst wage negotiations. Against this backdrop, the All Share Index was flat (-0.2%), with a massive divergence between Resources (-11.8%) and Industrials (+6.9%) as "cheap" got even cheaper. Property was down slightly (-0.4%) giving up early quarter gains in dramatic fashion in response to a jump in bond yields; bonds were down (-2.3%) with the first foreign outflow in 9 quarters, but income gained slightly (+0.3%). Cash returned 1.3%. Global equities were down slightly in $ terms (-0.5%) while global bonds got hurt (-2.7%); both performed better in rand terms (+7.5% and +5.1% respectively) aided by rand weakness.

In the context of this, the Fund is ranked below mid-point amongst its new ASISA peers but has beaten its ALBI 1-3 year benchmark over the past 12 months after fees. As per last quarter's commentary, we would caution that the recent reclassification of ASISA categories has put this fund in a mixed bag of peers and not too much can be read from peer relative performance. During the market turmoil of the past quarter, we were vindicated by our defensive stance. As described in last quarter's commentary, we did not think that the low yields that had been on offer were sustainable. In addition, we had accentuated our defensive positioning further by favouring Prescient (our most defensive manager) over the others. This positioning paid off well with Prescient now our best performing manager for the quarter as well as year to date. However, Momentum and Investec produced decent benchmark-beating returns over the quarter.

Given current market conditions, we still believe that it may be prudent for our local fixed interest investors to have a capital preservation mindset. They should favor Absolute Income type mandates over Property and Long-dated Bond mandates. We believe that the Fund is positioned defensively and is likely to outperform cash over the next 12 months.