The FTSE JSE All Share Index increased by 3.2% in the month of December: driven by Financials (5.4%), Industrials (2.4%) and Resources (3%). Resources, Industrials and Financials comprised 32%, 48% and 20% respectively of the FTSE JSE All Share Free Float Index (at the beginning of the month). The rand strengthened against all major currencies: the British pound (4.3% to R13.61), the euro (4.3% to R11.06) and the dollar (5.6% to R8.40). The Commodity Index (CRB) lost 1.3% in dollar terms. The dollar gold price decreased 2.4%, while the dollar oil price finished flat, trading around $111 per barrel.

The All Bond Index gained 2.3% for the month, while the BESA Barclays Inflation-Linked Bond Index gained 3%. The STeFI Call Deposit Index returned 0.4%. Inflation increased 0.2% m-o-m to the end of November 2012.

From Mayan predictions to super storm Sandy, to near sovereign crises - we and the markets have survived. The Eurozone still exists after sovereign default fears over Greece and Spain. Obama is still president of the US after a nail biting election; and he managed to cut a deal in Congress to avert the full impact of the fiscal cliff. With an increase in last minute resolutions, it seems politicians and national treasuries were doing all they could in the past year to keep markets guessing!

Locally, GDP forecasts were revised downwards. After championing "doing more with less", the fiscus will now expect higher budget deficits. In the private sector, labour wage settlements were higher than inflation after violent protests, while productivity is not increasing at the same pace. Given disappointing growth numbers, we expect the low interest rate environment to persist. Inflation was in line with the consensus estimate at 5.6% y-o-y.

Inflation has been on a downward trend over the year and has been contained within the target band. Food prices continue to push recent inflation figures higher and the upcoming changes to the inflation basket in the New Year are expected to add to the y-o-y figures. PPI was unmoved from last month's figure at 5.2% y-o-y, just under the market estimate.

Growth in money supply increased, coming in at 6.3% y-o-y. PSCE was on an upwards trajectory over the year, from 6.2% in January 2012 to the current month's figure of 9.6% y-o-y. Concerns continue to be raised with regards to the unprecedented growth of unsecured lending and we may see the introduction of regulation aimed at reducing over-indebtedness of households in the coming year. Mortgage advances still show slow growth despite the low interest rate environment. Current credit figures, however, are unlikely to cause a change in the monetary policy over the short term.

It has been a year of averting disasters and the risks to global growth from sovereign crises remain. Local politics and labour unrest remain a concern in the coming year and against this backdrop, local growth figures are likely to be suppressed. Inflation, however, is well within the mandated target band. Given that the SARB aims to stimulate growth while balancing inflation risks, the current data indicates that interest rates will be low for some time to come.

The aim of the Fund is to produce superior risk adjusted returns relative to the peers. Studies have shown that that there is very little persistence skill in the timing duration bets and consequently, the ability to outperform on a consistent basis. The approach of this Fund attempts to outperform peers through the following:
> staying largely neutral on modified duration;
> lower fees;
> a low turnover approach;
> prudent and timeous exposure to credit to enhance returns; and
> optimal portfolio construction to select stock exposures.

To achieve this goal, the Fund has started to reduce its negative duration position by purchasing longer dated bonds and at the same time, this has increased the carrying yield. This lower duration relative to its peers, resulted in the Fund underperforming the average of the sector by 0.4%, with the Fund achieving 1.7% versus the average return of 2.1%.

Over time, the Fund will be systematically realigned to the fund approach above when the market offers opportunities, such as increased risk premia on an absolute or on a relative basis across the yield curve

The FTSE JSE All Share Index increased by 1.2% in the month of March: driven by primarily by Financials (3.1%) and Industrials (2.8%), but countered by Resources (-2.6%). Resources, Industrials and Financials comprised 31%, 48% and 21% respectively of the FTSE JSE All Share Free Float Index (at the beginning of the month). The rand weakened against all of the major currencies: the British pound (2.4% to R14.00), dollar (2.3% to R9.23) and the euro (0.2% to R11.81). The Commodity Index (CRB) gained 1.2% in dollar terms. The dollar gold price increased 1.0% and dollar oil price decreased 1.9% to around $110 per barrel.

The All Bond Index gained 0.2% for the month, while the BESA Barclays Inflation-Linked Bond Index gained 1.6%. The STeFI Call Deposit Index returned 0.4%. CPI increased 1.0% m-o-m to the end of February.

Banks were once again in the headlines after the announcement of haircuts to be applied to depositor balances in Cyprus. The involuntary 'bail-in' by depositors was a funding requirement so that Cyprus could access €10 billion in financial assistance. Concerns remain that this may set precedence in the resolution of continued sovereign debt and bank capitalisation woes - a move that is sure to heighten social tensions and may instigate another liquidity crisis in the banking sector. Though Cyprus is small compared to rest of the Eurozone (0.2% of GDP), these events highlight that we are not yet out of the woods and there is still a risk to global growth if a banking blowout occurs. In the domestic market, the SARB kept the repo rate at 5%, citing weak growth in an environment with upside risk to the inflation forecast. Interest rates should be flat in the short term with possible policy tightening expected in the 12-month forecast. If growth figures continue to disappoint while inflation trends upward, the scope for further monetary policy easing will be reduced.

After coming in below consensus last month, inflation figures surprised on the upside this month at 5.9% y-o-y against a market forecast of 5.6%. The inflation figure could have been higher were it not for the larger-than-expected decrease in food inflation. Core inflation also ticked upwards from 4.7% to 5.3% y-o-y. The inflation figures did not alter the monetary policy stance by the MPC, however, close consideration by the SARB to demand-led inflation and persistent rand depreciation can be expected in upcoming meetings. Year-on-year inflation was forecasted to temporarily exceed the SARB mandated upper target during the year, but it now seems the breach may occur earlier than expected. The market rates reflect a reduced likelihood of a rate cut by year end, and seem to have priced in an interest rate hike in the next 12 months.

Growth in money supply increased to 7.7%, from 6.7% y-o-y last month. PSCE fell for a second month to 7.9% y-o-y. Credit extension to households remains steady. However, advances to corporates were down to 5.6% y-o-y from 7.5% the previous month. Unsecured lending to households appears to have moderated, mortgage advances figures were firmer. Current credit figures are neutral for short-term monetary policy changes and signal possible moderation in consumer spending in the short term, as well as somewhat shaky confidence in the business environment.

On the international front, the Eurozone and the impact of the Cypriot resolution continue to draw attention. Locally, the focus is on domestic inflation and the risk is to the upside. Given the market reaction to the recent labour unrest, further depreciation in the rand post the upcoming wage negotiation season will not improve the inflation outlook. The current monetary policy position is expected to remain unchanged in the short term, however, increasing inflation figures may force the SARB's hand and we may see interest rate hikes earlier than expected.

The aim of the Fund is to produce superior risk-adjusted returns relative to the peers. Studies have shown that that there is very little persistence skill in the timing duration bets and consequently the ability to outperform on a consistent basis.

The approach of this Fund attempts to outperform peers by:
> staying largely neutral on modified duration;
> lower fees;
> a low turnover approach;
> prudent and timeous exposure to credit to enhance returns; and
> optimal portfolio construction to select stock exposures.

To achieve this goal, the Fund has started to reduce its negative duration position by purchasing longer dated bonds and at the same time, this has increased the carrying yield. This lower duration had a positive effect relative to its peers (on average) for the month of March.

Over time, the Fund will be systematically realigned to the approach above when the market offers opportunities, such as increased risk premia on an absolute or on a relative basis across the yield curve.