Fund Review
The fund had a tough quarter amidst a general "risk-off" situation in global markets, after the excellent first quarter. The dollar return of -7.5% for the quarter translated into a rand return of -3.8% as the rand lost 5.9% against the dollar, 4.8% against the pound and 1.1% against the euro. The fund under-performed the dollar benchmark return of -5.4%, partly because the better performers during the quarter were on average the very large companies, as opposed to the mid-size companies chosen for the portfolio by the fund manager, Origin and also investors preferred higher dividend-yielding companies than those held in the portfolio, which tend to be growth shares with lower dividend yields. Not much has changed in the portfolio, with high quality and attractively valued industrial and technology shares remaining Origin's largest overweight sectors, versus their continuing underweight of Financials. They remain very overweight in the US and close to benchmark weight in Japan and emerging markets, while continuing to avoid continental Europe and the UK, although they did add slightly to Financials and to Europe during the quarter. During the year to end June, the fund returned -0.9% in rands, or -15.1% in dollars, well below the benchmark's return of -6.1% in dollars.

Looking Ahead
As frequently occurs, the period from April has been a difficult one for global risk markets, coinciding as it does with the languid northern hemisphere summer months. Global economies have weakened and risk aversion has increased, to the detriment of equities, most currencies and some corporate bonds. STANLIB's house view is that the US and global economies will continue to grow, albeit slowly. We are hopeful that investors will return to riskier investments like equities as the northern hemisphere summer draws to a close in September. One big positive in 2012, as opposed to 2011, has been the consistent cutting of interest rates around the world, as well as the sharp fall in the prices of many commodities, especially oil. Both of these positives should help to underpin economies and stock markets later in 2012.

Fund Review
The fund did 5.5% in rands in the quarter, in line with the MSCI World Index. With the rand gaining 5.3% against the dollar, 2.9% against the pound and 2.4% against the euro, the dollar return was a more impressive 10.9% in the first three months of 2012.

Origin, who manage the fund for STANLIB, comment that they have suffered a bit so far in 2012 through both their underweighting of and stock selection within financials (as the lower quality names have continued to rally) as well as through the underperformance of a number of high quality US industrials such as Deere and Roper. They strongly believe that as the year unfolds investors will once again return to focus on quality, valuation and underlying business performance, much of which has been lost in the recent market exuberance.
Technology and consumer stocks continue to constitute the fund's largest overweight positions and Origin are still finding their best ideas in North America. Apple Computer is 2.3% of the fund. It was bought at $209 per share and is now trading at over $600 per share, up 14% in the past month and up over 50% in 2012. Origin remains close to benchmark weight in Japan and emerging markets while, despite recent strength, find far less to attract them in Europe and in financials.

The portfolio is 15.6% overweight in North America and 14.6% underweight in Europe and the UK.

Looking Ahead
The equity bull market entered its fourth year on 9th March. Global economies in general are continuing to recover - with exceptions of course - and interest rates remain very low, with many more cuts so far in 2012 around the world. On balance 2012 should continue to be a good year for equities, despite periods of weakness from time to time.

Fund Review
Global equity markets recovered somewhat through the fourth quarter following the third quarter's large losses. The MSCI AC World index rose by 7.3% in US dollar terms, ending the year down 6.9%. All regions rose, with the exception of Japan, led by North America. Industry performance was quite varied, with little obvious pattern in terms of "risk on" versus "risk off". Tobacco, traditionally a lower beta "defensive" sector led the rally, though the oil sector came close behind. While at the bottom end came traditionally higher beta steel, autos, mining and banks.

The Fund's "A" shares rose by 2.3% in rands in the fourth quarter. For the year as a whole the fund returned 9.4%.

Our "equal opportunity" approach - that of picking the best ideas without regard to the benchmark - suffered in Q4 as it did for most of the year from the significant outperformance of the very largest stocks, of which there are (by definition) relatively few and thus to which we will tend to be underexposed. The top 20% of global market capitalisation is accounted for by just 34 stocks whose size ranges from $99bn upwards. This quarter this group of stocks returned 10.6%, 3.3% more than the index, while for the year as a whole this group rose 2.8% versus the index fall of nearly 7%.

Looking Ahead
While equity prices fell, corporate earnings rose through 2011, with the current consensus estimate standing at around 11%. If this does turn out to be the case, global markets ended 2011 on a trailing p/e ratio of 12, well below its long run average and appearing somewhat anomalously low when compared with the current level of bond yields. Although estimates for 2012 have continued to come down, analysts are still looking for a repeat performance of +11% for corporate profits growth in 2012, which would place global equities on a prospective p/e ratio of 11x. A level which clearly reflects the uncertainty which faces investors as we enter the new year.

The overall shape of the portfolio has not changed a great deal over the past quarter although there has been some further reduction in industrial exposure in favour of consumers. Our largest regional position remains our overweighting of North America, and we are now for the first time overweight Japan, while we remain underweight in Europe and the UK and, as has been the case for several years, we continue to avoid most financial stocks.