Most markets started the quarter strongly on continued global central bank liquidity - the BOJ announced a massive $1.4tn bond buying program and the ECB cut its main refinancing rate by 25 basis points to 0.5%. 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. Despite weak economic data, the PBOC engineered a cash squeeze to reign in irresponsible bank lending; possibly in response to a Fitch ratings downgrade on their longterm local currency. 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.
Relative to the fund's strategic asset allocation (SAA), we held an underweight position to our local equity building block at quarter end, having trimmed equities into strength. We remain underweight our local property building block, though less so than at the start of the quarter, having added to our property exposure in June (after the significant correction in listed property). It is pleasing to note that we trimmed property near the peak (prior to the correction). Our overweight to absolute income at the expense of cash was maintained - we like the yield pickup at the short end of the curve. We were slightly overweight our foreign SAA with exposure boosted by rand weakness.

The Fund delivered a return of 13.1% for the past 12 months, in line with the mean peer (ranking 46/86). Having low duration fixed interest assets finally paid off as bond yields spiked. As mentioned above, we partially closed out our low duration position by adding to listed property. Our increase in foreign exposure (in the first quarter) benefitted performance as the rand weakened. Over the past 3 years the Fund has delivered a return of 10.4% per annum, slightly behind the mean peer.