Fund review
The portfolio rose by 12.3% in rand terms during the period under review, which was in line with the MSCI ACWI benchmark. Attribution shows our GEM position contributed to returns but this was offset by our large cap bias. In the growth/value derby, no clear leader has emerged so our growth tilt was neutral. Our offshore holdings continue to outperform, however the fund benchmark has 5% in rand cash & we were fully invested offshore. This masks some of the things we got right as the rand continued to strengthen from being the worst performing primary currency in 2008 to being the best this year. Relative to peers we are in the top quartile over 5 years & top half over 3.

Looking ahead
As we enter the last quarter of the decade its worth reflecting on the past 10 years. It's been an incredible period of volatility with bubbles & busts everywhere. In years to come we will probably marvel at all that went on. Looking ahead we continue to believe stocks began a cyclical bull market in March. We say a cyclical, rather than secular, bull market because it's unlikely equities will reach record highs before the next bear market sets in. Following the 66% rally since the March lows we believe the market is vulnerable to a correction. We noted in April that investors were so pessimistic that all that needed to happen for stocks to rally was that the world didn't come to an end. The outlook for stocks from here is much more heavily dependent upon the strength of the economic recovery & corporate profits (we see a reasonable case for optimism on both scores relative to consensus). Rising unemployment remains a clear headwind, while lower than expected ISM data recently reminded investors the recovery path may not be a smooth one.

Market overview
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. One of the main factors behind this optimism was the series of encouraging news emanating from some major US financial institutions and announcements from authorities, 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.

Fund review
The portfolio posted a return of 23.2% in dollars during the period under review, outperforming the MSCI AC World index return of 22.3%. Attribution shows the aforementioned was largely due to a marginal overweight emerging market position, with the Fidelity Emerging market fund outperforming its developed market peers by 11.8%. Unfortunately the large cap tilt within the portfolio detracted. Finally the benchmark has 5% in rand cash and we were fully invested offshore. This masks some of the things we got right as the local unit rebounded 19% against the dollar from being the worst performing primary currency last year to being the best this year.

Looking forward
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 reacted swiftly to the recession as shown in the Q1 2009 results, and despite limited visibility in the short term; earnings should not act as a drag on equity markets even if top-line growth remains dependent on economic recovery. However, over this quarter, attention will be focused on the relatively 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 forced 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?

Market overview
Global equities fell sharply over the first two months of 2009, providing no relief for investors after the pain of last year. Worsening economic data, downward earnings revisions and fears of possible bank nationalisations were among the factors driving shares down. In March however, the market staged a rally and recovered some of its YTD losses as proposals from the new Obama administration to support the economy helped to steady sentiment. Despite its March increase, the MSCI AC World Index still recorded a loss for the 1st quarter of 11.3% in US $ terms.

Fund review
The equity component of the portfolio outperformed its benchmark during the period under review. Attribution shows the aforementioned was largely due to a marginal overweight emerging market position (+1%), which outperformed developed markets (-11.8%) while our growth bias also contributed to returns (Value -16% vs. Growth -8%). Unfortunately the large cap tilt within the portfolio detracted. Finally the benchmark has 5% in rand cash and we were fully invested offshore. This masks some of the things we got right as equities fell and the local unit rebounded 5.2% from being the worst performing primary currency last year.

Looking forward
We are still of the opinion equity markets have discounted an enormous amount of bad news. But the million dollar question is, has it discounted the worst we are likely to see? I am firmly bullish on the longer term prospect for equities, but acknowledge that the range of near-term outcomes is unusually wide. Once the market finds a bottom, the potential upside is substantial. My base case scenario is for equities to outperform all other asset classes over the next 3 - 5 years (especially from current levels).

In a dire year for equities, the final quarter of 2008 provided little relief for investors with the MSCI ACWI falling 22.4% in dollar terms (bringing YTD declines to -42.7%)! As economic data continued to deteriorate, central banks & governments enacted measures to stimulate growth & restore confidence. In this regard president-elect Obama announced the largest public construction program since the 1950s. On the monetary policy front the ECB radically changed its analysis of the economic situation & cut rates by 0.75%, the most in its history, while the BOE slashed rates to a 57 year low of 2.0% - this has subsequently been followed by further easing to 300 year lows. Fund review The fund outperformed its benchmark by 50 basis points during Q4 with 5/7 underlying funds beating the Index. Unfortunately this was not enough to negate the underperformance of the previous quarter resulting in the Fund underperforming by 3,76% for the year. Attribution shows the aforementioned was largely due to a marginal overweight emerging market position (which underperformed developed markets), and stock selection within the US portion of the fund sub funds. This was compounded by the funds growth tilt, which detracted from returns and masks some of the things we got right. To this end the large cap bias in the portfolio added value. In rand terms the portfolio benefitted from the rand finishing the year as the worst performing primary currency in the world - down a massive 28% for the year. Looking forward One of the direct consequences of the failure of the 4th largest investment bank in the US was the inter-bank lending market ground to a halt - a symptom of the loss of trust between financial institutions. From this point on, investors gradually came to realise 2 things: firstly that the slowdown in the global economy was gathering pace & would not spare emerging economies; and secondly, even though the solutions put forward by the authorities were actually an appropriate response to the crisis they would not provide an instant cure. Equity markets have already incorporated lots of bad economic views & unless the economy turns into depression, which is fairly unlikely, then technical & sentiment indicators deserve a strong focus at this stage of the cycle. In the short term equities will continue to be undermined by consensus earnings expectations, which remain too high and there will need to be downward revisions. This could be particularly severe in the financial sector as the de-leveraging process leads to even more write-downs.