The euphoria during the first quarter triggered by the ECB's LTRO faded, with stocks falling sharply and erasing all their gains before a late-quarter rally returned the market to positive territory for the year. Concerns over the European debt crisis, weak economic data from the US and China, further credit rating downgrades and the future of Greece in the Eurozone drove sentiment for the quarter. All major indices ended lower during the second quarter with emerging markets underperforming their DM counterparts (Europe was the exception with Greece and Spain falling 31% and 15% respectively in dollar terms). The first half of 2012 was plagued by many competing factors and no particular theme emerged as a clear driver of performance.

Against this backdrop, the Fund performed exceptionally well relative to its peers, with its overall defensive positioning adding value. The Fund outperformed its category average by around 0.7% for the quarter, bringing its total outperformance for the past 12 months to 0.8%. Over the past 3 years, the Fund has produced a 10.9% return p.a. where it was ranked 5th best performing fund out of 21 funds in the global equity category. Active managers have continued to struggle against the index with the typical global equity manager underperforming by 1% year to date. In this regard, the Fund's near 30% weighting to passive strategies has added value. On the active side, Aberdeen performed well thanks to significant exposure to quality shares, especially healthcare and consumer staples. Broadly speaking an underweight to the US detracted from overall returns for most managers except Fidelity who have a significant overweight to the region.

The big question is still the outlook for the global economy. The risk of a catastrophic financial failure has eased somewhat but markets are still priced for a pessimistic outcome. Investors increasingly challenge the notion that central banks have any firepower left to overcome the persistent forces of deleveraging. In our view, the ultimate solution to high levels of indebtedness will take decades (certainly not quarters) to resolve while the painfully slow process of enacting changes poses an ongoing challenge to investor patience. How US politicians react to the pending fiscal cliff is uncertain so it's easy to see why investors may adopt a "wait-and-see" stance for the rest of the year. On the positive side some significant decisions have been made at the last European summit to avoid increasing the debt burden. While we believe many of the aforementioned risks appear to have been priced into valuations, sovereign debt issues could continue to roil markets and volatility will be the only constant.

The rally which began towards the end of last year continued through the first quarter and global equities are now over 20% above their early October lows. In part, the turnaround in sentiment reflects a delayed reaction to the recovery in global economic activity in the second half of last year. We believe the turnaround also reflects far more accommodative central bank policy, especially in Europe. Interestingly, the composition of the rally changed significantly this year as the larger cap, less economically sensitive stocks that dominated market performance in 2011 languished, while investors rotated into more cyclical companies amid the improving economic outlook.

The STANLIB Multi Manager Global Equity Feeder Fund posted a 5.6% return after fees in Rands during the period, very much in line with its benchmark and peers. Absolute returns over 1 year are now positive again (+9.7%). Manager performance was mixed with Marathon and T Rowe Price outperforming while our defensive managers, Aberdeen and Veritas, unsurprisingly lagged. Performance in Q1 was largely attributable to stock selection. In this regard an underweight to Financials detracted; however it was offset by overweight's in better performing stocks such as Goldman Sachs and JP Morgan. A below benchmark weight in consumer discretionary stocks proved negative but was made up by an overweight position in the technology sector. Geographical allocation had a negative effect on relative performance, which was primarily due to the underweight in North America. Similarly, being overweight the UK and Switzerland at the expense of Germany did not help. Increased turnover in the fund was due to a manager change where we replaced T Rowe Price, our growth oriented manager, with Fidelity.

While the economic outlook appears better than it did in early October, stocks are also more expensive than they were prior to the rally in the last 6 months. In addition, there have been many sharp swings in the outlook since the financial crisis and we would not be surprised to see more swings as economies around the world remain fragile and weighed down by deleveraging. A more pressing short term concem for us is that earnings may have peaked this cycle and we therefore expect markets to remain macro focused and volatile. Taking a broader view, the major central banks remain in highly stimulatory mode, increasing the size of their balance sheets. How they unwind all this liquidity once the structural headwinds to growth finally fade, and whether they can really react in time, remain to be seen.

Market overview
After a truly horrendous third quarter, which saw the MSCI AC World Index lose 17% of its value (in US dollar terms), financial markets welcomed the improvement in the economic outlook and good company results in the final quarter of the year. Equity markets rebounded by 7.2% in USD for the quarter. Investors focus was however squarely on Europe, waiting to see what the eurozone countries would come up with by way of a solution to the sovereign debt crisis. The two summits held by the eurozone countries during the quarter proved disappointing in that they failed to result in any effective solutions to the debt problem. Nevertheless high expectations in advance of the meetings enabled equity markets to make strong intra-quarter gains, with additional support from Chinese authorities who relaxed monetary policies to support growth.

Fund review
The STANLIB Multi Manager Global Equity Feeder Fund posted a gain of 2.5% over the fourth quarter of 2011. For the full year, the fund produced a near 10% return, helped significantly by the 18% depreciation of the Rand relative to the Dollar during the year. Global equities were down 7.9% in USD during this time. Pleasingly, the underlying global equity fund into which this fund feeds outperformed its benchmark for the third consecutive calendar year. Four out of the five underlying managers outperformed the MSCI AC World index over the quarter, with stronger performance from the two defensive managers Aberdeen and Veritas, while Marathon was the only manager to underperform. Performance over the quarter owed to a combination of stock selection and sector allocation. Stock selection in the US and the underweight allocation to the region had a significant impact on performance for a number of managers, particularly Marathon and Aberdeen, while at sector level, stock selection within the consumer sectors and healthcare made the most impact.

Looking forward
Even if the causes of the economic turmoil are still there - weak global economic growth, deleveraging in developed economies and the euro sovereign debt crisis - we think 2012 could offer some opportunities for more active bets and to increase risk. Whilst the euro sovereign debt crisis will probably continue to be the main factor driving financial markets in the coming months, prompting renewed spikes of volatility, the ongoing resilience of the US economy, the relatively attractive valuation of equity markets and the still cautious stance of investors are all favourable pre-conditions for a future rise in equities when visibility improves. Moreover, the very accommodative monetary policies from major central banks and the fact that the ECB is increasingly involved in reflation policy and has taken very strong measures to alleviate the liquidity pressure on banks are very supportive of financial markets. In summary, we believe that opportunities to take more risk will appear, but global returns overall are likely to remain modest given that the deleveraging process is far from complete.