It was a rough quarter for global stock markets. Fears of a Greek default ran high culminating in a plunge in early August. Shares gyrated wildly thereafter, ultimately ending off near quarter lows. Weak data releases (manufacturing, confidence, employment) made markets question whether we were headed for another global recession and the negative impact this would have on corporate profitability. In reality there was a mixed bag of economic data, but the dour mood of the markets dominated. Ultimately we believe weak political leadership to be the core problem - US political bickering and the inability of eurozone leaders to take decisive action have severely dented market confidence. The All Share Index was down sharply (-5.8%) for the quarter, with resource stocks particularly hard hit. Interest rate sensitive asset classes continued to climb with the market focusing on growth concerns likely keeping interest rates lower for longer; income (+3.0%), bonds (+2.8%) and property (+2.2%) did well over the quarter, despite foreign investors dumping emerging market bonds in September. Cash returned 1.4%. In rand terms, global equities were down (-2.6%) with the loss mitigated by rand weakness; global bonds were up strongly (+19.4%) mainly due to rand weakness.

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

The Fund delivered a return of -1.6% for the quarter, lagging the mean peer by 0.7%. We ascribe this to disappointing performance from our equity building block (which we are in the process of reviewing) and our overweight to foreign equities relative to peers. On a pleasing note, Our Absolute Income fund continued its good performance, ranking 18/53 for the quarter. Over the past 3 years the Fund has delivered a return of 8.1% per annum, ranking 18/31, and in line with peers.

A flat quarter for global stock markets masked significant intraquarter volatility. Markets seem to be caught in a tug of war between persistent sovereign debt concerns juxtaposed to strong corporate profitability, solid balance sheets and appealing valuations. Weak US employment and manufacturing data, and a return of Greece's debt woes sent markets into a plunge in June, but markets surged in equally dramatic fashion in the last week of the quarter as Greek Parliament passed austerity legislation. The All Share Index was marginally down (-0.6%) for the quarter, with losses in large caps and resource stocks outweighing gains in small/mid caps and industrials. Property posted a strong gain (+5.0%) boosted by a drop in local bond yields. Bonds ran hard (+3.9%) aided by substantial foreign purchases on the belief that rate hikes will begin later and be more muted than previously forecast. Income (+2.2%) and Cash (+1.4%) also gained with the short end of the curve underperforming. Both global equities (+0.3%) and global bonds (+3.2%) gained in rand terms.

Following our annual benchmark optimization exercise, we made some adjustments to the strategic asset allocation of the Fund during the quarter. The changes to the benchmark composite return calculations were made with effect from 1 June 2011, with previous history maintained. The intention was to raise the risk/return profile to be more in line with peers. We believe that the new asset class mix will provide superior returns through the cycle. The result was a significant increase in our strategic weight to equities (local and global) at the expense of a lower strategic weight to fixed interest and foreign cash. On a see-through basis, we were overweight both local and global equities, relative to benchmark at quarter end, having made opportunistic purchases near the June lows. We topped up our exposure to our Absolute Income Fund following the closure of the Bond Fund last quarter. We ended the quarter with our foreign exposure marginally underweight relative to benchmark.

The Fund delivered a positive return for the quarter in line with the mean peer. Over the past 3 years the Fund has delivered a return of 8.1 % per annum, ranking 7/31, and pleasingly ahead of peers by 1.6% per annum.

It was a positive quarter for global stock markets (aided by solid corporate earnings), despite a mid-March blip arising from panic selling triggered by the Japan earthquake crisis. Developed markets outperformed their emerging market counterparts, with a shift in investor focus from the growth prospects of the latter to the better value offered by the former. The All Share Index gained (+1.1%) for the quarter, with the rally led by large caps and resource stocks. Property was negative (-2.2%) being adversely impacted by a rise in local bond yields. Cash (+1.4%) and income (+1.3%) produced positive returns with the long end of the curve underperforming; bonds (-1.6%) were dragged down by investor concerns that we are at the bottom of the interest rate cycle. Global equities gained (+4.5%), as did global bonds (+1.2%); due to rand weakness, the rand returns were stronger at +6.6% and +3.3% respectively.

On a see-through basis, we were overweight both local and global equities, relative to benchmark at quarter end, having made opportunistic purchases after the Japan crisis. We mitigated the impact of rising bond yields by increasing our underweight to fixed interest. We ended the quarter with our foreign exposure overweight relative to benchmark having taken money offshore during periods of rand strength. We restructured the real retum component of our Fund by removing OMIGSA, with the remaining 3 managers being reweighted into an optimal blend. We removed the bond building block, which became redundant with the enhancement of our income fund into the Absolute Income fund, where we appointed Investec, Prescient and RMB with flexible mandates to invest across the fixed interest duration spectrum. In line with industry guidelines, we have increased the equity range of the fund from 45-55% to 40-65%, which will provide us with the opportunity to add more value through tactical asset allocation.

The Fund delivered a positive return for the quarter in line with the mean peer. Over the past 3 years the Fund has delivered a return of 6.9% per annum, ranking 10/32, and pleasingly ahead of peers by 1.4% per annum.

Global stock markets ended the year with a strong quarter, continuing their run from September. Investors reacted positively to both solid and weak economic data releases, with the latter increasing the likelihood of a second round of quantitative easing (money printing), which became refenred to as QE2. The Fed delivered QE as expected on November 3rd. The All Share Index gained (+9.5%) for the quarter, with the rally led by small caps (and then large caps) and resource stocks. Property lagged (+3.1%) with the benefits of low inflation / interest rates already largely priced in. Income (+1.8%), cash (+1.4%) and bonds (+0.7%) produced positive retums with the middle of the curve outperforming. Global equities ($) gained (+8.7%), but global bonds lost ground ($) (-1.3%); due to rand strength, the rand retums were weaker at +3.7% and -5.9% respectively.

On a see-through basis, we were overweight local equities and neutral global equities, relative to benchmark at quarter end (we have been sellers of local equities into market strength, partially switching into global equities). We were underweight bonds (and had relatively low duration), having made some timely sales during the quarter, with favourable inflation data and the interest rate down cycle drawing to an end. We ended the quarter with our foreign exposure underweight relative to benchmark due to continued rand strength. Looking forward, we will continue to look for opportunities to tactically tilt the Portfolio to favourably positioned asset classes, with the objective of enhancing portfolio performance.

The Portfolio ranked 14/33 amongst its peers for the year, over which period our building blocks performed well versus their respective benchmarks - particularly our property and real retum building blocks, ranking 3/21 and 10/46 respectively. Over the past 2 years the Portfolio has delivered a retum of 14.2% per annum, ranking 19/33, and ahead of peers by 0.4% per annum.