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 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). Property (+10.3%), bonds (+5.2%) and income (+3.0%) all gained (lower interest rate expectations), with our bond market benefiting from substantial foreign inflows. Cash returned 1.3%. In rand terms, global equities were up (+1.0%) aided by rand weakness; global bonds were positive in $ terms (+0.6%) and strongly up in rand terms (+7.8%).

Relative to the funds composite benchmark, we held an underweight position to our local equity building block at quarter end, having continued to sell equities on global macroeconomic concerns. We were overweight global equities, seeing this as a form of protected equity (the rand should weaken during a selloff, cushioning losses), but primarily because of compelling valuations. We were slightly overweight local property on strong performance, overweight absolute income, underweight cash, and overweight foreign.

The Fund delivered a return of 8.6% for the past 12 months, slightly behind the mean peer (ranking 43/68). Having a low duration exposure to fixed interest assets and an underweight to foreign vs. peers (with a significantly weaker rand) were negative contributors. We implemented a manager change in our equity fund (Coronation being the newly appointed manager), in line with an enhanced portfolio construction framework; to date this move has enhanced performance. Over the past 3 years the Fund has delivered a return of 9.8% per annum (ranking 31/57), broadly in line with peers.

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 finance ministers approved a financial rescue for Greece, and the ECB provided a liquidity boost to European banks with a second round of lending. There were also negative news releases which markets chose not to focus on - 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%, a poor trade report and a decline in factory output. The All Share Index was up strongly (+6.0%) for the quarter, led by financials and industrials and mid/small caps. Property (+8.0%), bonds (+2.4%) and income (+2.0%) all gained over the quarter, with our bond market benefiting from substantial foreign inflows. Cash returned 1.3%. In rand terms, global equities were up strongly (+6.0%) despite significant rand strength over the quarter; global bonds were positive in $ terms (+1.1%) but down in rand terms (-4.5%) due to rand strength.

Relative to the funds composite benchmark, we held a neutral position to our local equity building block at quarter end, having implemented a switch into our real return fund during the quarter where we preferred the "protected equity" nature of its equity exposure in a stretched market. We were overweight global equities, seeing this as a form of protected equity as well (the rand should weaken during a selloff, cushioning losses), but primarily because of compelling valuations. We were neutral local property, overweight absolute income and underweight cash. We ended the quarter with an overweight foreign position relative to benchmark.

The Fund delivered a return of 2.9% for the quarter, in line with the mean peer (ranking 40170). A disappointing performance from our equity building block was countered by the benefit of being underweight foreign versus peers (with the rand stronger over the quarter). We have closely examined our equity fund recently which resulted in some changes which we are currently implementing - further details to follow. Our Absolute Income fund continued its good performance (ranking 20/60 for the quarter), and our Real Return fund continued to perform satisfactorily. The Fund beat its benchmark composite by 0.4% over the quarter, aided by our real return building block beating its benchmark (+1.3%), and our underweights to cash and global bonds.

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 All Share Index was up sharply (+8.4%) for the quarter, led by financials and industrials and large/mid caps. Interest rate sensitive asset classes continued to climb higher with Eurozone woes increasing the likelihood of global central banks remaining dovish; property (+3.7%), bonds (+3.5%) and income (+2.2%) did well over the quarter, with our bond market benefiting from strong foreign inflows. Cash returned 1.4%. In rand terms, global equities were up strongly (+7.9%) with the rand relatively flat over the quarter; global bonds were only up slightly (+1.1%).

At quarter end, on a see-through basis, we were slightly overweight both local and global equities relative to benchmark. We were neutral our property building block, overweight our absolute income building block and underweight cash. We ended the quarter with our foreign exposure overweight relative to benchmark.

The Fund delivered a return of 3.5% for the quarter, ahead of the mean peer by 0.3% (ranking 24/65). It benefited from a turnaround in the performance of our equity building block, and our overweight to foreign equities versus peers. Our Absolute Income fund continued its good performance (ranking 18/55 for the quarter), and our Real Return fund improved since last quarter (ranking 23/49). The Fund beat its benchmark composite by 0.7% during 2011, aided by our equity building block beating its benchmark (+1.0%), and our global equity and bond building blocks beating their benchmarks by 1.4% and 0.8% respectively (ZAR). Our property building block detracted, lagging its benchmark by 0.9%. Over the past 3 years the Fund has delivered a return of 9.2% per annum (ranking 25/54), ahead of peers by 0.3% per annum.