Global equities rallied 17.3% (US$ terms) in the 3rd quarter & are now up 26% YTD. This follows a similarly strong Q2 resulting in the largest two-quarter increase since 1975. Key to this rally was further evidence that the world would avoid a global depression thanks to successful stimulus packages & demand in Asia. Europe was the best performing region, benefiting from better than expected economic statistics, including, amongst others, an emergence from recession in France & Germany. Conversely, a change in government, bad economic news and a strong currency negatively impacted exporters and ensured that Japan lagged for the quarter. Elsewhere, stronger than expected earnings and better housing data in the US were amongst the positive indicators in Q3.

The STANLIB Multi Manager International Fund of Funds performed in line with its peers during the period under review and pleasingly has sharply outperformed during the rally of the last 6 months. While most managers fared well through the earlier part of the quarter, performance proved slightly weaker in September. Overall, Aberdeen & Marathon provided the strongest contribution to out performance. Stock selection proved to have the most significant impact on performance, particularly within the Financials & Consumer Discretionary sectors. Surprisingly, whilst most of the underlying managers were underweight Financials through the period, this did not actually have too significant an impact on relative performance.

The past 10 years have been characterised by significant volatility with bubbles & busts everywhere and not many returns from the global equity market to speak of. In years to come we will probably marvel at all that went on. At this point the outlook for the next 10 years must surely be more positive off this low base in both markets and earnings and the cyclical bull market since March is most encouraging. Whilst it is unlikely equities will reach record highs before the next bear market sets in, we think it unlikely that they will set new lows, although perhaps currently vulnerable to a correction. We noted in Q1 that investors were so pessimistic that all that needed to happen for stocks to rally was for the world not to end. Having avoided this, corporates now need to deliver on earnings. While we are cautious in the short term the longer term outlook has improved as the global economy has now stabilised & monetary policy is very accommodative. Valuations do not look stretched compared to past periods of economic recovery & there is a mountain of cash sitting on the sidelines with many investors getting miserable returns on their defensive instruments.

The second quarter of 2009 was marked by a return of investor confidence and risk appetite, with equity markets rebounding strongly and surprisingly delivering the best quarterly performance in 20 years. Key to this optimism was the series of encouraging news releases emanating from some major US financial institutions and announcements from the authorities (namely the US Federal Reserve and the Treasury) which were well received by investors. The G20 undertakings in early April, the close "vetting" of the US banking system by way of stress tests, the strength of Chinese demand and better than expected economic indicators published in the Unites States and then in Japan and Europe all combined to sustain this rally.

Although the longer term returns of the Portfolio have been a little disappointing, it was pleasing to note that it was one of only a handful in its sector to produce a positive return for the quarter in Rand terms - particularly given the massive strength of the Rand. In dollar terms it matched the return of its benchmark the MSCI AC World index. Of the five underlying managers, there was underperformance from Gartmore and Veritas, which was mostly offset by strong performance from Marathon and Aberdeen, and modest outperformance from T Rowe Price. Sector allocation proved to be a significant driver of performance over the quarter, particularly the underweight exposure to Financials, which detracted through April and May, but proved beneficial when market leadership rotated away from Financials in June. Selection and allocation within the Consumer Discretionary sector also made a significant contribution to relative returns for most of the underlying managers.

Earnings momentum in the US is improving, there are now as many upgrades as downgrades and analysts have stopped slashing expected earnings for this year. Companies have reacted swiftly and we suspect that earnings should not act as a drag on equity markets even if top-line growth remains dependent on economic recovery. However, the focus this quarter will be the weak condition of the global economy. The question being asked is whether Central Bank action and fiscal stimuli will be sufficient to encourage growth? Or will de-leveraging continue as governments are force to re-calibrate more realistic plans for future fiscal expenditure while the private sector continues to build up savings at the expense of renewed consumption?

Global equities were down a spectacular 22.4% in dollars for the quarter ensuring that 2008 goes down in history as one of the worst years ever for global equity markets. The MSCI AC World Index was down 42.2% in dollar terms for the year, but only 20.9% in Rand terms given its near 30% depreciation relative to the dollar. All of the damage was inflicted in the last 6 months of the year as the financial crisis unfolded and rapidly converted into an economic / earnings crisis. Volatility has been extreme reflecting a high degree of risk aversion and resulting in the massive deleveraging of risky assets across the board. The extension of credit has literally dried up as vulnerable banks sort to protect their balance sheets. The unprecedented monetary and fiscal stimulus unleashed by policy makers has yet to have a positive impact on the rapidly deteriorating economic situation or investor confidence. In this difficult environment the Fund delivered disappointing results, being down 31% for the year.

Alliance Bernstein and T. Rowe Price were the key detractors for the year. Typically Alliance Bernstein, a deep value manager, should have played a defensive role, however the stocks and sectors that had been hit hardest (appearing to offer the most value) continued to come under pressure as the crisis unfolded. T. Rowe Price, a growth manager, was also hard hit given their higher beta portfolio. Encouragingly much of this has reversed in January. At a regional level, the overall fund was overweight the UK and emerging markets, which was negative. The Fund would have however benefited from a near 8% weighting in cash during the quarter.

Going forward we have planned some manager changes to the Fund designed to lower its overall beta and improve its structure. Although the current prognosis for global equities is rather uncertain we suspect that at current levels much of the bad news is being discounted offering investors an excellent 5 year buying opportunity and we believe that sentiment will steadily improve as the year progresses.