The Fund ranked mid-table for the quarter, albeit that it produced a return marginally ahead of the average return. Over the past 12 and 36 months the Fund was 1% and 2.4% p.a. ahead of the peer group average respectively.

The recent trend of Emerging Market (and South African) equity outperforming global equity continued in the quarter driven by the expectation of lower interest rates for longer in the US. This has led to the resumption of the carry trade and positive foreign flows into South African equities. This had a positive effect on the Rand, which stabilised somewhat during the period and finished the quarter at R/$10.63. At a sector level, the equity market was driven by large caps (+7.4%), specifically industrials (+9.5%) and financials (+8.7%), whilst resources (+2.8%) lagged.

Clearly the lingering mining strike had a negative impact on investor sentiment and we noticed some manager rotation out of resource shares following the strong outperformance in the 1st quarter. Over the past year, the Fund has delivered a return of 30.3% to investors, which was pleasing. Strong performances were delivered by the Allan Gray Equity Fund and the Nedgroup Entrepreneur Fund. Since the beginning of the year, exposure to both managers has nearly doubled, allowing the Fund to participate more in their relative outperformance. Together with their underweight position in large cap resources, Allan Gray benefited from large positions in SAB, Remgro, Investec and Netcare which outperformed the market. Entrepreneur also held Netcare and benefited from exposure to Reinet, Omnia and Trencor. Both the Coronation funds took a breather following strong outperformance in previous periods, particularly the Coronation Top 20 Fund which struggled as a result of its largest share Anglo American. Relative to its local based peers, the STANLIB Multi-Manager Global Equity Fund performed well for the quarter thanks to a welcome recovery in the performance of Aberdeen, Marathon and Veritas, the funds value managers.

The market is starting to reward more value oriented managers, which is a theme that follows on from the first quarter of this year. The subtle changes we have made in the portfolio are reflective of this and we believe this value tilt in the portfolio is likely to offer some downside protection in the event of the 'long-time coming' market pullback. On that note, we caution that South African equities have rebelled against increasingly pedestrian economic fundamentals. Domestic GDP growth looks to be lackluster, sentiment is starting to wane on the back of rating agencies downgrades and generally expensive valuations point to potentially much softer returns in local equities over the remainder of the year.

The Fund performed in line with the peers for the quarter and remains around 3.5% ahead for the past 12 months. We mentioned in our previous report that the strategic inclusion of a dedicated global equity position via the STANLIB Multi-Manager Global Equity Fund had benefited performance in the final quarter of 2013. This continued into January as the Rand weakened and global equity rose, however there was a noticeable change in this dynamic as the quarter progressed.

Global equity initially dropped as the Fed announced that interest rates would rise roughly 6 months after the end of QE Tapering - ahead of market consensus. It subsequently recovered somewhat, but under performed EM equity markets. Having depreciated sharply to around R/$11.40, the Rand turned and started to strengthen, partially because the SARB raised local interest rates, but also because it was cheap and nervous EM investors in Russia partially switched their equity exposure into South African equity. Local equity outperforming global equity is likely to be a headwind for the Fund relative to its predominantly local only ASISA General Equity peer group.

Value managers generally had a better time of it in the first quarter, which benefited the Allan Gray Equity and Kagiso Equity Alpha funds. We increased our exposure to Allan Gray by 2% during the quarter. Managers owning quality stocks at the right price, struggled as "momentum ran out of momentum" during the quarter. Coronation, Rainmaker and Prudential were negatively impacted by this although only Prudential underperformed the peer group given its 15% direct exposure to global equity.

We reduced our exposure to Prudential and the STANLIB Multi- Manager Global Equity Fund as the Rand started to strengthen. Small caps have underperformed large caps over the last 6 months or so and we have continued to maintain a low weighting to the Nedgroup Entrepreneur Fund as a result. It is likely that we will make further changes to the fund line-up and weightings during the 2nd quarter as we further develop our understanding of the SA manager universe and the volatile market provides us with ample opportunities.

We feel the local equity market is on the expensive side and following a lengthy period of positive performance is vulnerable to bad news. A wall of "trapped money" from institutional investors forced to repatriate forex and company earnings growth of around 10% for 2014 will provide an underpin to the market. As such the catalyst to a fall in the market is likely to be an exogenous global factor or a local macro factor relating to the strength of the SA economy. Timing the market, as always, is unpredictable and long term investors need worry little about these small bumps in the road.