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STANLIB Global Bond Fund STANLIB Offshore Ltd STANLIB Global Bond Fund News STANLIB Global Bond comment - Mar 19 Tuesday, 11 June 2019 Fund Manager Comment Fund Commentary: 1st Quarter The Stanlib Global bond fund returned 3.25% for the first quarter compared to the benchmark return of 2.20%. The year to date outperformance can mainly beattributed to the increased exposure to the U.S. Market overview Performance during the first quarter was strong, with support coming from both currency and bond market positioning. The biggest contribution to absolute performance came from the bond overweight positions, with U.S. and Mexican duration delivering the bulk of the gains. An overweight position in U.S. Treasuries and short-dated U.S. dollar-denominated corporate bonds contributed positively to performance. As the Fed lowered expectations for near-term rate hikes, Treasury yields rallied and finished the quarter lower along the curve. Lower rates and the benign Fed outlook also fostered a constructive environment for both investment grade and high yield corporate bonds. An overweight to long-dated, local-currency Mexican bonos position was particularly beneficial to returns. Bonos also rallied across the yield curve, buoyed by the Bank of Mexico’s stance, the more dovish Fed outlook, improving economic activity, and rising commodity prices. Indonesian bonds also added gains to the portfolio, rallying as the Fed’s new dovishness enabled the Indonesian central bank to keep its policy rate steady. The lack of exposure to Japanese sovereigns and low-yielding European duration detracted from performance as most developed bond markets participated in the broad bond rally during the quarter. The most significant contributor to relative performance was currency positioning. The portfolio did not own euros, which weakened early in the year, accounting for the majority of the currency attribution. The remainder came from positioning in emerging currencies, including the South African rand, Malaysian ringgit and Indonesian rupiah, with the biggest return coming from the Mexican peso. The most detrimental currency exposure was to the Swedish krona, which continued to bear the brunt of questionable Riksbank policy compounded by weak inflation and disappointing retail and manufacturing data. Looking ahead The portfolio remains broadly underweight the dollar. Duration is roughly equally split between U.S. exposures, mainly in long-term Treasury bonds, and select emerging market local-currency sovereign bonds. The overall effective portfolio duration is slightly below the benchmark. Duration in other developed country markets remains virtually absent. The rest of the duration exposure remains invested across numerous emerging country sovereign bond markets, the largest and most persistent being an unhedged allocation to Mexican bonos. A gradual stabilization in the global economy with suppressed yields in the developed world is an inviting scenario for yield compression with the developing world. The fund also remains significantly underweight U.S. dollars with a bearish outlook. Global economic data may continue to weaken owing to time lags, but policy shifts from the China and the U.S. should lead to a reversal of the deteriorating global economic trend. We believe this development will benefit the emerging market overweight position.   Stanlib Global Bond comment - Mar 16 Wednesday, 15 June 2016 Fund Manager Comment Fund Review After a difficult 2015, the fund performed very well in the first quarter of 2016, returning +7.7% in dollars (benchmark 5.9%), as the emerging market currencies and bonds bounced off their extreme lows. In the year to end March the fund returned -2.3% (benchmark 4.6%). The continued high exposure of the portfolio to emerging market bonds (35.8% of portfolio) and currencies (44.6% of portfolio) finally boosted returns as emerging market equities, bonds and currencies bounced sharply, buoyed by commodity prices, US economic data, a weaker dollar and negative interest rates in Europe and Japan, which helped drive investors into higher-yielding assets. Brazil, Turkey and Mexican bonds performed the best. The fund upped its holding in US bonds from 28% to 36% (versus 38% for the benchmark) and remains very overweight in Mexican bonds (13.2% of fund) and the Mexican peso. Brandywine, the fund manager, prefers to show the regional allocation as 17.7% in Asia-Pacific excluding Japan, with 13.5% in Emerging Markets, 2.9% in Europe ex-Eurozone, 12.9% in the Eurozone, 3.0% in the Middle East and Africa and 49.3% in North & Central America. The fund has increased its underweight in the dollar, (25.9% from 28% last quarter, versus 43.7% for the benchmark). The fund has a tiny position in the euro of 0.8% (benchmark 24.7%) and 5.0% in the yen (benchmark 17.1%). The fund is yielding 4.1% currently, with a modified duration (sensitivity to changes in bond yields) of 7.7%, both higher than benchmark. Government-related bonds comprise 77.6% of portfolio, with 0% in high yield bonds. Looking ahead Brandywine, the fund manager, continues to think that ultra-supportive monetary policy, cheap energy, devalued currencies and low interest rates should make 2016 a pivotal period for global growth. However, they still expect long-term safe-haven yields to remain capped on the upside as a result of the still formidable debt overhang, a benign global inflation environment, a low terminal level for G3 policy rates and entrenched concerns of global economic fragility. They believe that select emerging market debt offers the most attractive sources of yield and potential currency return among their investible universe.   Stanlib Global Bond comment - Jun 14 Monday, 15 September 2014 Fund Manager Comment Fund Review The fund has returned 5.3% in dollars in the first six months of 2014, after a good return of 3.1% in the second quarter to end June. The fund continues to hold a big allocation to Emerging Market bonds (36%) and an even bigger allocation on the currency front (53%), because they hold a number of currencies without any bond holdings, including Indian rupees and Indonesian rupiah. They are underweight US bonds, European bonds and Japanese bonds. Looking ahead Brandywine, the fund manager, expects long bond yields in the US will remain capped as a result of the still formidable debt overhang (almost $17 trillion for the US government alone), a benign global inflation environment, institutional de-risking, weak credit growth and entrenched concerns of global economic fragility. This is a different view from many managers, who expect bond yields to rise quite strongly. So far in 2014, most managers have been wrong. Brandywine has been right. Brandywine thinks that if the long bond yields do remain capped, then future US Fed policy rate hikes are unlikely to impact local emerging market bonds as much as the process of US quantitative easing tapering did.   Stanlib Global Bond comment - Mar 14 Friday, 6 June 2014 Fund Manager Comment Market background Developed-Market Sovereign Debt Most yield curves around the globe flattened during the quarter, benefiting exposures at the long end of yield curves. In the U.S., U.K., South Africa, and Australia, short-term rates increased when policy makers forced market participants to pull forward rate-hike expectations with hawkish language. Economic data generally improved later in the quarter across these countries as well. Long rates sank, however, in response to tame global inflation reads, weak Chinese trade data, wobbling equities, declining metals prices, and geopolitical uncertainty. Long rates in higher-yielding markets like Mexico and South Africa fell alongside global safe-haven treasury yields, but also benefited from improved investor sentiment for lower-quality credits. Euro-zone bond markets produced outlier results with yields across the curve falling meaningfully. Bond yields fell there as investors priced in a high probability for the European Central Bank (ECB) to deliver unconventional, deflation-fighting measures. Peripheral Euro-zone bonds again posted the best performance among all markets in our universe. Near-deflationary conditions, an implied free put option written by the European Central Bank, tight spreads in similar-quality corporate markets, and considerable investor demand for new bond issuance combined to push peripheral yields to pre-crisis lows. Developed-Market Currencies Central bank actions moved currency markets during the first quarter of 2014. The New Zealand dollar (up 5.3%) benefited from its central bank being the first in developed markets to raise policy rates. The Australian dollar (up 3.9%) rallied as well despite a steep fall in copper during the quarter. A "short-squeeze" exacerbated the upward move, which fundamentally was motivated by an unexpected shift to neutrality in the central bank's rate bias, blowout jobs data in March, and an expectation of stimulus from China. The Mexican peso ( up 0 .3%) also rallied in February and March after a weak January on improved foreign investment flows, a surprise trade surplus, and better U.S. data. The Euro (down 0.1%) climbed in January and February, only to fall in late March on weak inflation data and the strongest commitment yet from ECB president Mario Draghi to conduct quantitative easing. After falling to multi-year lows against the U.S. dollar at the end of 2013, the yen (up 2.1%) rebounded modestly in the first quarter. The Chilean peso (down 4.4%) stumbled after the bank cut rates in response to weaker copper prices, the country's primary export. Emerging Markets Emerging bonds and currencies rallied as currency volatility fell, inflation and current accounts improved markedly, and investment flows returned to most of the battered Fragile Five countries. The Brazilian real (up 4.6%), Indonesia rupiah (up 6.85%), and Indian rupee (up 3.2%) all benefited alongside gains in their bond markets. The Hungarian forint (down 3.4%) fell during the quarter in response to policy rate cuts. Despite more than 400 basis points of rate cuts over the past two years, the forint avoided depreciation in 2013 due to a hefty current account surplus and historically low inflation. Geopolitical uncertainty in neighbouring Ukraine and continued policy rate cuts helped shake investor sentiment during the quarter. Corporate and Mortgage-Backed Securities High Yield and investment-grade credit spreads contracted during the quarter. Lower quality and European high yield debt provided the best performance. Securitized debt, which is typically issued with shorter maturities, tended to underperform given the sector's lack of duration. Our limited holdings of lower-quality securitized and structured credit benefited performance, as investors continued to hunt for wider credit spreads. Performance The STANLIB Single Manager Global Bond Fund outperformed the benchmark, the Barclays Capital Global Aggregate for the quarter end March 2014, which was largely driven by the currency contribution against a negative bond contribution.   Stanlib Global Bond comment - Sep 13 Thursday, 2 January 2014 Fund Manager Comment The STANLIB Single Manager Global Bond Fund underperformed the benchmark, the Barclays Capital Global Aggregate, by 235bps gross of fees (244bps net of fees), for the quarter end September 2013. This was driven by the currency contribution, with the gross negative return from currency contributing 140bps of the negative relative performance for the quarter. This compares with a negative bond contribution of 87bps over the same period. Throughout most of the quarter, global bond yields crept higher on better economic data from Europe and China, and to a lesser extent, from the U.S. In mid-September, however, when Fed officials surprised financial markets by not cutting monetary stimulus plans, yields globally fell back to levels at which they began the quarter. Longer maturity yields in Mexico and Brazil followed that pattern, despite Mexico cutting its policy rate and Brazil raising its rate in an effort to stem inflation pressure. Yields of 30-year maturity Treasuries, where Bradywine favour exposure, rose more than the rest of the U.S. yield curve. Japan's bond market bucked the trend as yields drifted lower throughout the entire quarter. Markets expect the Bank of Japan will need to add considerable monetary stimulus-primarily by purchasing government debt-to meet its aggressive inflation goals. Moreover, the impact of a sales tax hike should weigh on economic activity and require additional stimulus to offset its effects. With respect to currencies, a delay in Fed stimulus tapering and improving economic data from Southern Europe and China lifted most developed market currencies to a gain against the U.S. dollar during the third quarter of 2013. Strength in the Euro (up 4.0%), British Pound (up 6.6%), and Swiss Franc (up 4.6%) reflected better economic performance in Europe, but more importantly, strength from recently troubled Spain and Italy. The New Zealand Dollar (up 7.8%) and Australian Dollar (up 2.4%) rebounded on an improved China outlook. The Brazilian Real (down 0.2%), Mexican Peso (down 1.1%), and South African Rand (down 1.1%) each fell early in the quarter but rallied substantially in September to produce a volatile but unremarkable quarterly return. Canadian Dollar (up 2.2%) strength emanated from the surprise Fed decision. Emerging markets currencies tended to weaken across the board, save the Hungarian Forint (up 3.2%), which maintains a considerable bid as a result of the country's structural current account surplus. Hungarian bonds also produced positive absolute performance. Investors shunned the Indian Rupee (down 4.8%) and Turkish Lira (down 4.4%), worried about a weakening trend in currencies of countries importing capital and those sensitive to oil price shocks. Despite a volatile period across global financial markets, credit outperformed treasuries by only a modest amount. The best credit performance accrued to holders of debt in financial companies and sub-investment-grade issuers. After a series of upbeat economic reports from the southern euro-zone countries, European-domiciled credit also outperformed meaningfully. Securitized credit, including non-agency mortgages, lagged corporate credit due to a slowdown in the pace of improvement of housing prices. Investors preferred to wait to see the longer-term impact of higher interest rates on housing   Stanlib Global Bond comment - Jun 13 Friday, 20 September 2013 Fund Manager Comment The STANLIB Single Manager Global Bond Fund outperformed the benchmark, the Barclays Capital Global Aggregate, by 92bps gross of fees (84bps net of fees), for the quarter end June 2013. This was driven by the bond contribution, with the gross excess return from bonds contributing 116bps of the positive relative performance for the quarter. This compares with a negative currency contribution of 25bps over the same period. In a highly volatile quarter, Federal Reserve "tapering" speculation dominated trading and pushed government debt yields higher across nearly all countries. Troubled euro-zone sovereigns Ireland and Italy represented the only bond markets that produced positive absolute returns during 2Q. Falling correlations and tightening credit spreads in troubled euro-zone sovereign illustrates the success of Mario Draghi's "whatever it takes to save the euro" guidance. Australian bonds also produced standout performance due to an unexpected May rate cut. The bank explicitly noted a likely peak in commodity-sector investment and disinflation. All other bond markets produced weak absolute performance. Mexico and Brazil, in particular, produced poor returns. Brazilian yields rocketed but underperformance reflected a growing inflation problem, spurring the finance ministry to remove a tax on international fixed income investors and catalysed a rate hike of 50 bps. With respect to currencies, commodity-influenced currencies fell sharply in value during the quarter, primarily in reaction to reports that Chinese economic growth may be slowing and transforming more quickly than previously assumed. The Brazilian real (down 9.0%), Australian dollar (down 12.4%), New Zealand dollar (down 7.8%), and South African rand (down 8.0%) all produced notable weakness. The South African rand escaped worse losses after it printed a smaller current account deficit and lower inflation than expected. The steep synchronous fall in many currencies this quarter leads us to believe valuation anomalies are emerging. The Mexican peso (down 5.5%) fell on little to no country-specific news. The Japanese yen (down 5 .1%) continued its policy induced descent against other currencies. The euro (up1.5%) vacillated throughout 2Q with U.S. dollar news dictating market action. Most emerging markets debt and currencies absorbed performance losses in May and June. Rising G3 bond yields diminished the attractiveness of EM bonds and currencies, while sharp volatility forced many leveraged traders to unwind carry portfolios, typically constructed with long positions in higher yielding countries funded by short positions in low-yielding G3 cash. With dearer money in developed markets, investors fled currencies in the precarious position of relying on international capital flows to finance current account deficits. The Indian rupee (down 8.6%) and Turkish lira (down 6.2%) provide good examples. Hungary's forint (up 4.7%) bucked the trend by rebounding off 1Q weakness associated with a leadership change at the central bank. Hungary announced a larger-than-expected current account surplus. Hungary's bond market rallied during 2Q but Turkish government bonds produced losses due to political instability. The central bank in Turkey, among others, intervened to support the value of its currency. Credit spreads widened in all credit markets and new issuance volume collapsed at the end of the quarter in reaction to the steep rise in interest rates, diminished summer liquidity, and sharp volatility. Non-agency mortgages produced similarly weak performance, though the fundamental picture of U.S. housing-the strength of the collateral behind the loans- continued to improve. The Case-Shiller Home Price Index increased 12% year on-year (y/y) in June (largest y/y increase since 2006). New home sales increased 29% y/y to 476,000 units (highest point since July 2008).   Stanlib Global Bond comment - Mar 13 Thursday, 30 May 2013 Fund Manager Comment The first quarter of the new year started on an upbeat note for investors. U.S. political leadership overcame the threat of the fiscal cliff, the Federal Reserve's (Fed's) commitment to do what it takes to support employment fired up risk-taking, and Japan's new leaders wasted no time embracing the formula used in Japan during the 1930s to end deflation. But investor unease set in by the end of the quarter due to the fractured results of the Italian election, the European Union (E.U.) stumble over the bailout/in of Cypriot banks, and concerns about another growth pause. Geopolitical event risk added to uncertainty too-this time as a result of bellicose rhetoric from North Korea. It is no coincidence that hostility feels like it is breaking out all over the planet. The global hegemon has turned its budget priorities away from policing the world in favor of expanding entitlements. Investment Performance The Global Opportunistic Fixed Income portfolios produced flat absolute returns, but on a gross and net basis outperformed the benchmark Citigroup World Government Bond Index. The benchmark produced negative returns primarily because of currency depreciation. The yen declined significantly against nearly all currencies (even though Japanese Government Bonds rallied), a result of the monetary regime shift taking place in Japan. Japan's government bond market is the second largest in the world with corresponding significance in the Citigroup World Government Bond Index as well as other traditional global bond benchmarks. We have not owned any yen or Japanese government debt in our portfolios for some time, due to our assessment of price and information risk. As a result, the bulk of this quarter's relative performance can be attributed to the drop in the yen in addition to our sizeable commitment to Mexico. The performance of the traditional global bond benchmarks during the first quarter speaks volumes about the wisdom of looking at global bond indexes as neutral benchmarks. Historically, the deviation of a portfolio from a benchmark weighting has been treated as a measure of risk. This approach is worse than useless. It is potentially misleading. Constructing a benchmark by assigning the largest weights to the most profligate issuers of debt intuitively biases the benchmark to the riskiest markets in the world. We have written numerous white papers about this issue in great detail which are available on our website but the performance results during the first quarter illustrate the issue better than any research. Our definition of risk is the probability of permanent capital loss. We try to minimize this risk by avoiding currencies and bond markets where we believe prices are too high relative to their intrinsic value and where we feel there is information risk based on our macro outlook. Conversely, we try to capture return by investing in securities that are trading below their intrinsic value and where we believe information risk acts as a tailwind. Investment Strategy We continue to see no value in the traditional safe-haven bond markets of the world. Real yields are negative and you need a microscope to see the nominal yield in some instances. But the debate has been about information risk: what is the outlook for the global economy? Under what conditions will the price risk in these markets be realized and when will they weaken? Global growth will pick up when uncertainty and the lack of confidence fade. But when will that be? U.S. consumption and investment have been the backbone of global demand for decades; China has been the breadbasket of global production. The financial crisis of 2008 broke the back of credit creation in the U.S., robbing the world of its spender of last resort. Are we witnessing the beginnings of a revival now that housing has turned? How fast will China be able to rebalance its economy away from exports to consumption? When will Europe's "adjustments" be complete? After climbing gradually since la t July, safe-haven bond yields have reversed lower in recent weeks due mainly to some of the setbacks in Europe and concerns about another sag in U.S. economic growth. The prospect of Japanese liquidity flowing into other foreign bond markets is another potentially important factor. Overall, the combination of fiscal restraint in the U.S. and deflationary pressure in Europe does not portray the kind of strong macro dynamic usually associated with a runaway bear market. This is the reason why we concluded this January that 2013 would be a transition year. Little has changed to alter this view. Central-bank policy continues to nudge investors out the risk curve and we don't see much sign of that ending soon. Consequently, our portfolios remain heavily skewed away from the traditional markets with negative real yields and lots of price risk to areas of the world where we see price opportunity, positive real return and a nominal carry. This is part of the reach-for-yield story of which we are a participant. The risk with the reach-for-yield play is that nominal carry can seduce an investor to stay longer than justified by the absolute return opportunity. These markets are vulnerable to a sudden rush for the exit when the macro dynamics begin to push up yields in traditional fixed income markets. Our discipline should protect portfolios from this because of its focus on absolute value. For example, we have been invested in 10-year Polish bonds for years. During the quarter we reduced duration to a very low level while maintaining our position in the currency. The reason is that return opportunity for owning these bonds has played out in our view. There has been lots of volatility in currencies, illustrated by the more than 8% depreciation in the yen (our largest underweight) and a near 4% gain in the Mexican peso (our largest overweight). We started the year with a small position in euro, which we sold during the quarter in favor of dollars. Our macro-analysis shows the U.S. is the most advanced economy and is the most likely economy to reach "success" first, which argues in favor of the dollar. The euro may continue to range trade for some time but ultimately the ECB's balance sheet will need to expand and there seems little sustainable upside in the euro based on the macro outlook for Europe. We maintain a significant holding in the British pound. There has been tremendous speculation that incoming Governor Mark Carney will be more amenable to expanding the scope of monetary policy which could push the currency lower. His position on this matter won't be clarified until he takes office this summer. In the meantime, outgoing governor Mervyn King has indicated he does not want the currency lower for the time being. This and the value we believe is contained in sterling support sustaining this position. However, we are on alert for a change in thinking when the new governor takes office. We have a smaller weighting in commodity currencies because of our outlook for commodities. Our analysis suggests these currencies are trading above their intrinsic values based on a broad spectrum of widely used measures. Obviously they are closely tied to commodities and the bull market in the latter seems to have topped out. The dollar is no longer weak, the supply side has had a decade to respond to higher prices and China's growth dynamic is shifting away from the scenario which supported the commodity complex the previous 10 years. All these developments suggest commodities will mean-revert lower. We continued to cutback our holdings of U.S. investment-grade corporate bonds. We view this asset class opportunistically and have invested in this sector four times in the last 20 years. The combination of low Treasury yields and tight corporate spreads led us to a steadily reduce these weights as absolute and relative value diminished. We maintain a significant weight in Mexican bonds, although we pared this position back slightly as well due entirely to the reduction in price opportunity. We know that we have a lot of company in these bonds. However, this has been the case for some time. By itself, it is not a reason to abandon this position. More importantly, the kinds of supply-side developments that suggest positive information risk are in play in Mexico. The new government is moving ahead with proposals aimed at deregulating and breaking up the telecommunications industry-one of the more notable initiatives. These kinds of measures boost growth and reduce inflation. We own this position unhedged. In Europe, we continue to own positions in some of the peripheral country markets: Italy, Ireland, and Portugal. There were setbacks in this quarter due to the Italian elections and the anxiety triggered by Cyprus. However, our broad outlook remains unchanged. The ECB is prepared to work with governments to reduce peripheral spreads and backstop the financial system. The process is not going to be smooth but lower yields and spreads should prevail as the year advances. We do not own any Japanese bonds. The cascade lower of JGB yields this quarter is reminiscent of Treasury yield behavior in 2008. Yields plunged into December of 2008 as the Fed started the first QE program. In early 2009, however, they rebounded sharply as investors bolted from this market. The Bank of Japan is going to lean into that selling but the outlook seems clear enough. The government wants a 2% inflation rate and yields currently are about 0.6%. Not much value here.   Stanlib Global Bond comment - Dec 12 Friday, 12 April 2013 Fund Manager Comment Investment Strategy This year will be a challenging one for disciplined investors. Our outlook anticipates a rotation in capital away from zero and/or negative real-yielding safe-haven fixed income markets and into assets with equity-like risk characteristics. Central banks want to fire up animal spirits and push investors out the risk spectrum, which should be constructive for the search for yield while the story plays out. But the absolute reward/risk outlook will deteriorate as price appreciation unfolds. At some point, confidence should begin to improve-most likely with the U.S. first out of the gate. Improved U.S. growth could push money out of the bond market and into the economy. We have invested through many different economic cycles and there is a point in every cycle where capital preservation and price risk argue for reducing duration. We don't think we are there yet but it seems probable that we will be at some point in the next couple of years. Should 2013 be the year of transition, it will be difficult for our portfolios to match the strong absolute performance of recent years. For now we believe we are still in a sweet spot with money still likely to rotate out of low yielding safe-haven markets to higher-yielding global bond markets. Correspondingly, over 80% of the duration in our global bond strategy exists in markets other than the traditional safe-haven areas with overall duration slightly below the Citigroup WGBI global bond benchmark. This includes a 15% position in U.S. investment-grade corporates, which we have been gradually reducing as spreads and yields compress. Our largest positions as a percentage of total duration are in Mexico, Italy, and Poland. We captured a considerable portion of the pricing anomaly that existed in Mexico via both the decline in bond yields and rally in the peso. Both still trade slightly cheaper to where we value their long-term equilibriums. More importantly, Mexico's new government has embarked on a significant reform program aimed at breaking the stranglehold of the supply side of the economy that has arisen from the interplay between Mexico's labor unions, business cartels, and political system. The reforms are constructive and we are optimistic that progress will be made. Peripheral bonds in Europe are one of the few areas in the global market that offer substantial absolute real yield. We knew these yields were discounting the possibility of a euro-zone break-up. Though, we firmly believed policymakers and politicians would create a plan to contain the crisis. The ECB's commitment to the OMT program was the policy breakthrough and peripheral yields are melting. As a result, we made a significant investment in Italian bonds and smaller investments in Portugal and Ireland. Polish bonds rallied so sharply in 2012 that the curve is now inverted slightly. What has captured our interest in this market for a long time has been the positive real yield opportunity in combination with the constitutional limits on public debt and the tough stance of the central bank. The opportunity is diminished going into 2013 but higher real and nominal yields relative to many safe haven markets should benefit Poland's bond market at least in the first half of the year. Rounding out the portfolio duration are investments in sovereign bonds in South Africa, Brazil, Hungary, Turkey, Malaysia, and South Korea. All positions are unhedged. Our currency strategy is on a case-by-case approach. Broadly speaking, we are biased to the smaller currencies given that the major central banks appear to be in a printing contest. No one wants a strong currency, but the smaller countries are at a disadvantage in terms of resisting the forces from the big monetary guns. Our warnings of a monetary regime change that would be bearish for the yen came to pass in the last quarter of the year. The new government mounted an unprecedented attack on the policies of the Bank of Japan, accused the central bank of not doing enough to fight deflation, and demanded a 2% inflation target, which is a full 3% higher than current realized inflation. Prime Minister Abe is looking to follow the U.S. monetary line and pursue aggressive reflation aimed at bringing an end to the deflation that has left the economy stagnant for almost 20 years. The new government sees yen devaluation as part of the recipe for ending deflation. What is unclear is how far. The Prime Minister said he wants it no stronger than 90, but a meaningful reflation of Japan will require far more depreciation. Japan's economy is export driven and highly vertically integrated. Top-line growth in the domestic economy will require an extremely strong export sector. As for concerns about competitive devaluation, Japan's Finance Minister Taro Aso has said flatly that Japan will do what is in its interest, especially since the G20, in its view, has violated a 2009 agreement not to depreciate competitively. All of this encourages us to avoid Japanese bonds and the currency. We remain underweight the euro, although our exposures in Europe's peripheral bond markets are unhedged. We are more constructive on the dollar than the euro over a long time horizon, but over the months ahead we view the euro/U.S. dollar exchange rate to be range-bound. A strong euro is not in Europe's economic interests while any euro downside may be limited by the actions of the Fed. As time progresses, any sign of a revitalized entrepreneurial spirit in America could tip the balance more in the direction of the dollar. A few currency positions in the portfolio contribute no duration. We continue to hold a significant weight in British pounds. Its post-crisis decline took the pound to a valuation level we thought was anomalous. It has been relatively flat since the end of 2010 despite the U.K. economy's experiment with extreme fiscal restraint and easy money. Relative to the euro, the currency has gradually moved higher but not always in a straight line. Our view is that the British economy would be in much better shape, which would be a plus for the currency, were it not for the scale of the crisis in Europe, its main export market. Stabilization in Europe could bring upside surprises in the U.K. economy. We see opportunity in the Indian rupee based on the undertakings of reform by the government. The country runs a large current-account deficit due mainly to imports of oil. The latter is driven by the government's policy to subsidize the price of fuel, which also explains the bulk of its budget deficit. The government has moved to reduce these subsidies while encouraging foreign investment through more liberal foreign-ownership rules and streamlined administrative procedures. Our investment in the Chilean peso, like the Brazilian real, reflects an expectation that world growth will pick up next year. The peso is closely tied to copper, which has traditionally been a good coincident measure of the growth tendency in the world economy. The Russian ruble is another currency position without duration. Here the story is partially about the price of energy and oil, of which Russia is a big exporter and aims to be even bigger, as well as actions taken by President Putin that seem aimed at encouraging the private sector to develop the country's energy capacity. Performance Attribution Global Opportunistic Fixed Income portfolios outperformed their WGBI benchmark during the quarter and for the full year based on a gross- and net-of-fees basis. All broad attribution categories-yield profile, currency, and yield curve effects- contributed to relative performance during both the quarter and year, with currency playing by far the largest role in outperformance. In both the year and quarter an avoidance of the Japanese yen substantially contributed to relative performance following the country's sharp, grassroots efforts to reflate the economy after nearly 20 years of persistent deflationary conditions. Owning Polish debt also provided a notable contribution to relative performance during the quarter and over the prior 12-month period. Investors expect a rate cut cycle by the central bank to continue into 2013, while a global hunt for yield and euro-zone healing also have helped Poland's bond market and the zloty. Not owning the euro mitigated a small portion of strong relative performance, but the team began to trim the large underweight to the currency early in the quarter at attractive valuations.   Stanlib Global Bond comment - Sep 12 Monday, 19 November 2012 Fund Manager Comment Investment Performance Portfolios were well positioned for many of the themes that we discussed in this letter, which led to a strong quarter across the various Global Fixed Income strategies. For our Global Opportunistic strategy, which offers our widest array of possible global fixed allocations, the absolute return was approximately 5.4% gross of fees, outperforming its Citigroup WGBI benchmark by about 2.4%. Over 80% of the outperformance came from our non-U.S. bond positioning, of which half was attributable to significant positions in Mexico, Poland, Australia and South Africa. The other half came from our holdings of U.S. investment-grade corporate bonds. Currencies added the remaining portion of outperformance. All of the higher-yielding currencies we owned contributed to relative performance, although our avoidance of the yen and euro mitigated better gains from currency positioning. Investment Strategy We pared back our U.S. dollar weightings quite significantly during the quarter, which is in line with our thinking that the Federal Reserve's open-ended quantitative easing announcement is bearish for the dollar over the short term. The proceeds from this reduction of our allocation to U.S. dollars were used to fund a new position in peripheral-European euro-denominated bonds, more Mexican debt, and a new position in the Indian rupee via non-deliverable forwards. In addition, we lifted the portfolio's hedge on Brazilian real. The decision to buy European peripheral debt follows directly from our view that the OMT program is a significant game changer and a credible commitment to driving yields lower to levels more in line with economic growth conditions. Specifically, the Global Opportunistic strategy has invested in Irish and Italian bonds. These investments were made on an unhedged basis, implying a slight reduction in our euro underweight. The euro has bounced back toward $1.30 with the perceived reduction in euro break-up risks and more gains may be possible. But we still remain significantly underweight the benchmark euro allocation because it is hard to see a sustained and dramatic advance in the euro with a weak European growth outlook. Other European exposures in the portfolio include a significant allocation to local-currency Polish and Hungarian sovereign debts. The Polish bonds offer attractive real return potential while the economic story is solid, particularly if Europe stabilizes as we expect. We also consider the zloty to be a high beta play on European stabilization. Value continues to remain trapped in Hungarian bond yields by the stubbornness of the Orban administration to yield to International Monetary Fund demands. We are sympathetic to Orban's supply-side instincts but he has little room to maneuver and believe he will soon be forced to capitulate. Our decision to unhedge Brazilian real exposures was motivated by our view that the exchange rate embedded in the forward market was lower than what we expect will prevail for the next few quarters. The scale of policy stimulus in this country has been exceptional and would normally call for a strong rebound in GDP next year. In addition, spending for the World Cup and 2016 Olympics will stoke the economy even more. On top of this, the Federal Reserve's policy decision brings added upward pressure on the real. The Brazilian authorities have promised to resist currency appreciation, which pretty much describes the dynamic we think will present itself for the next few quarters. In the meantime, there continues to be good value in Brazilian fixed income. Our new position in the Indian rupee came from routine and ongoing price risk/ information risk analysis. The currency had weakened significantly on the back of inflation fighting, a weak economy and anti-growth politics. This combination along with India's need for investment has persuaded the authorities to alter policy in order to attract foreign capital. We hope to capture return as the mean reversion process carries the rupee back to its underlying equilibrium value. We remain out of the yen, which has detracted from performance, but feel that the clock is ticking for this currency. There are many signs of regime change in this country, particularly with respect to monetary policy. The central bank has failed to prevent price deflation after 23 years since its financial crisis. The biggest part of the problem could be that its commitment to fighting deflation is just not credible, unlike the Federal Reserve's or ECB's. The political pressure for the central bank to get more aggressive is building quickly. The Bank of Japan increased enormously its budget for asset purchases but has not resorted to using these funds in a new or dramatic way that might suggest a change of tack in policy. The longer they wait, the more likely the politicians will take control. None of this is a reason for us to alter our stance on the yen. Bonds and Country Allocation Overall we continue to believe that the "safe-haven" bond markets of the world offer little value. Real yields in most of these markets are zero or negative across much of the curve. Correspondingly, we are not significantly invested these markets. Our portfolio duration is now roughly in line with the Citigroup WGBI benchmark, which is about 6.8 years. However, about 75% of our duration lies either outside of safe-haven sovereign bond markets or in holdings of U.S. corporate bonds. Of the 25% portion of duration remaining in safe-haven bond markets, half is in long-term U.S. Treasury's which we continue to reduce. We think there is significant price risk in these securities. But the absence of much private credit growth has inhibited any tendency for yields to rise in a sustainable fashion. This may change if a housing cycle gains traction next year and bids up the demand for mortgage credit. The path of fiscal consolidation will affect this but the trend seems clear. In general terms, money can be expected to rotate out of low yielding "safe-haven" bond markets into higher yielding but economically and fiscally sound emerging markets. The black-and-white, "risk-on, risk-off" era of investing of the past few years is over. Each country and bond market needs to be assessed on its own merit in this environment. The strength in non-dollar bond markets such as Mexico, South Africa, and Poland validates our "rifle-shot" strategy and our country allocation process as we have described in previous letters. Our holdings of U.S. investment-grade corporate bonds in the strategy have been fairly steady but spreads have fallen to low levels. Discussions are underway on when to pare exposure in view of the obvious increase in price risk. We continue to hold a small position in non-agency mortgage-backed securities (MBS) and believe that there is profit opportunity in this sector given the overall reduction in macro tail risk, the Federal Reserve's decision to purchase agency MBS as the focus of its extended quantitative easing operations, and as housing and credit fundamentals stabilize and improves.   Stanlib Global Bond comment - Jun 12 Wednesday, 22 August 2012 Fund Manager Comment Our investment strategy this year has been built on a "less bad" view of the world in which it pays to be more selective and discriminating in terms of approaching asset allocation. This is paying off across the portfolios. Our Global Opportunistic Fixed Income strategy generated 2.2% of return, gross of fees, and outperformance of 1.3%. All the gains came from duration and yield curve exposures which reflected our active positioning across a diversified set of sovereign-debt markets, mainly in the developing countries. U.S. corporate bond holdings, which represent about half of our U.S. bond allocation, also substantially contributed to relative performance. Currency positioning detracted from relative returns for the quarter, a reversal from the first quarter. What was gained from underweighting the euro was lost mainly through the bounce back in the yen as the BoJ back-pedaled on commitments to reflate. We think that our rifle-shot strategy of evaluating opportunities and risks on a case-by-case basis is correct. This is very different than a shot-gun approach that might make more sense if the "risk-on, risk-off" environment was still in play. Below we discuss our current portfolio positioning in detail: We remain overweight the U.S. dollar with no currency exposure to the euro and the yen. Among the major developed countries, our analysis shows that the U.S. may be the best horse in the glue factory-but no one wants a strong currency. Earnings growth in the U.S. has slowed and a significant portion of earnings come from abroad. Consequently, it would not take much of a rally in the dollar to smother the profit growth outlook. At the same time, it makes little sense to envisage a sustainably strong euro given the backdrop of fiscal austerity, an economic credit crunch, rising unemployment and an ECB looking for ways to support growth. Little has changed with respect to our views on Japan. The nomination by the government of two candidates to the board of the Bank of Japan who are in favour of more expansionary monetary policy highlights the political crisis in that country. The government is moving to boost the consumption tax and wants monetary policy accommodation. This combination is normally very negative for the currency. The main risk to being overweight dollars is that the U.S. economy weakens enough for the Fed to engage in more balance-sheet expansion, a development which we believe would be bearish for the currency. We are monitoring the key variables that the Fed tends to focus on when considering additional easing measures, which include employment as well as the five-year forward inflation rate. Overall duration is slightly below the benchmark's, with almost half of this contributed by U.S. dollar-denominated securities. Of the 2.9 years of duration in the U.S., 1.6 is in corporate credit-mainly from financials- where we continue to see value. Less than one year of duration contribution comes from long-term Treasuries, and the remainder comes from taxable monies and a small exposure to mortgage-backed securities. Consequently, your portfolios have a large overweight across many smaller markets that offer good yield and total return potential. This makes a lot of sense in a world where investors are starved for yield and where the global economy can continue to expand, even if it is very slowly. o Mexico is one market where we have invested significantly and have not hedged the currency. Yields are high relative to inflation, economic activity has been stable and positive, and the country has reduced its dependence on commodity exports. o Poland is another market where real yields are reasonable, the public sector is in good shape (there is a constitutional limit of 55% on public debt-to-GDP levels), and where headline inflation is being pulled lower by the European crisis. The zloty tends to be a higher-beta currency; however, it may outperform even the U.S. dollar if the majors tend to be more stable over the course of the remainder of the year. o Hungary is another European market where real yields are extremely attractive. Its debt profile is not as good as Poland's and there is some embedded currency exposure due to the country's large foreign-currency denominated mortgage claims. The country will begin negotiations with the E.U. and International Monetary Fund for assistance, though, which will push domestic adjustments in a bond investor- friendly direction. o South African bonds will soon be in the Citigroup WGBI, but have been in our portfolio for some time and continue to offer high real and nominal yields. Moreover, bond yields are trending lower in step with lower inflation and softer growth. There are longer terms political stability questions for South Africa and some funding issues given the government's role in boosting economic growth, but not enough to imminently derail current trends. o We continue to own Brazilian bonds due to the ongoing attraction of high real and nominal yields. Also, we recently lifted the hedge on the Brazilian real. The currency has fallen 25% from its peak in 2011 and the central bank is clearly uncomfortable with the scale of monetary and fiscal stimulus pumped into the economy. In addition, heavier Chinese policy stimulus implies to us a modest rebound in the commodity complex in the second half of this year and into 2013. All these factors suggest that the currency would not fall to the level implied by the forward foreign-exchange rate, leaving significant carry opportunity. These are a few of the various markets where we are deploying funds. In addition, capital has been allocated to other countries in Latin America and Asia, and we continue to maintain a large weighting in sterling through short-duration government bonds.   Stanlib Global Bond comment - Mar 12 Friday, 1 June 2012 Fund Manager Comment Our portfolios posted a solid quarter in both absolute and relative performance with most of the gains coming from currency selection. Our large underweight in the yen paid off as the currency tumbled in response to the Bank of Japan's promise to generate inflation. Our exposure to higher yielding currencies with exposure to global growth benefited from the aggressive reflation that played out during the quarter. However, exposure to longer-duration, safe-haven bonds-mainly U.S. Treasury's-detracted from performance during the quarter. As threats of an acute banking crisis in Europe dissipated during the quarter and signs of a pickup in U.S. economic strength emerged, yields in high quality countries increased. Our macro thoughts give us some very clear ideas about currency allocation. The U.S. outlook is a lot brighter over the next couple of quarters than what we see playing out in Europe, Japan and China which argues in favor of the dollar, at least for now. The Europeans face important elections and the re-emergence of more tensions across some of the peripherals argues for more ECB intervention. In addition, softness in some of the early leading indicators for Germany suggests more policy stimulus, not less, is needed for Europe. Fed Chairman Ben Bernanke has reaffi rmed the current stance of the Fed which is to keep rates at zero until 2014. But the Fed's policy stance is highly conditional on economic developments which are extremely uncertain. It is clear that the Fed Chairman has bought into the deflationary sub-par new-normal paradigm and must be very concerned that premature withdrawal of policy support would upend the expansion. As a financial historian, he probably sees parallels with the experience of 1936/37. He wants to keep his options open. Nonetheless, the dollar seems more likely to be king over the euro given the economic momentum we see building over the next quarter or two. We continue to own the British pound as well as a few European currencies outside the euro. This is in line with our view that the economic scenario in Europe won't be so bad as to create a general scenario of risk aversion. As for sterling, it is remarkable that this currency has not weakened despite severe fiscal cutbacks and hyper-expansionary monetary policy. The lack of price weakness is informative. The yen has regained a portion of its spectacular sell off during the first quarter and may continue to correct early in the second quarter. However, we believe that the outlook for the currency has hit an inflection point. Japan's politicians are fed up with the stinginess of the Bank of Japan and its unwillingness to end deflation and are putting maximum pressure on the central bank to reflate. The Diet's recent rejection of economist Ryutaro Kono's nomination to the Bank of Japan's board because he was too moderate was a powerful signal that the politicians want more aggressive measures. In bigger picture terms the story for Japan looks very poor. The government is under pressure by the International Monetary Fund to rein-in its budget deficit and is proposing to boost the consumption tax even though the population is shrinking and government spending has not stopped going higher. Tight fiscal policy and easy monetary policy is a recipe for currency weakness. But tight fiscal policy on the back of the people instead of government is especially negative. In the background, the general trend in the country's balance of payments is deteriorating. Households are net sellers of bonds and commercial banks were as well in the latest reporting period. We shed our position in non-deliverable Chinese RMB and the Indonesian rupiah in the first quarter, helping to reduce slightly our exposure in Asian currencies. The switch to monetary expansionism drove the decision on the RMB while the plunging level of Indonesian yields and near-30% credit growth suggested to us that the currency was fully valued. We continue to own local-currency Australian bonds but have hedged this commodity currency along with others. Our view on the controlled pace of China's policy stimulus leaves us to believe that there is not much support for the commodity complex at this time. In addition, we suspect considerable speculation in commodities given the special attention it has received over the last 10 years as an asset class. Moreover, Australia's economy shows signs of wear and tear from a number of quarters. Rising commodity prices have propped up Australia's nominal trade balance but real net exports have been falling since 2010 and are a significant drag on growth. In addition, the Reserve Bank of Australia tough stance on monetary policy may be starting to impact the housing sector at a time when many regard it to be in a bubble. We have been steady sellers of duration since the final quarter of 2011, especially in some of the safe-haven markets of the world which benefited from the flare-up of the European financial crisis last year. The main reason has been price risk. At current yields, there is limited investment value in Treasury's, Gilts, Bunds or JGBs. Central banks are always late. They are late reacting to downturns and late turning off the tap. This time around, Fed Chairman Bernanke has openly warned that he does not mind being late because he assesses the consequences of downside risk as much more devastating than getting a little inflation for a while. Most investors and central banks appear to be pre-occupied with deflation risks. But these risks seem well captured in current price levels of these various safe-haven bond markets. What these markets are not priced for is that monetization actually works to successfully reflate the world economy. Last year's sell off in corporate bonds was almost completely reversed in the first quarter, reducing U.S. investment-grade corporate spreads back to historic levels or below. Corporate bonds from the financial sector continue to offer reasonable value but in general we are looking to reduce our holdings in this.   Stanlib Global Bond comment - Dec 11 Friday, 23 March 2012 Fund Manager Comment Performance and Strategy We recorded our first quarter of slight underperformance since the crisis ended. What we gained on our duration and credit investments we lost on currency exposures. The biggest detractors from performance on the currency front were our large underweight positions in the yen and the euro. These were offset partially by our holdings in other currencies but not by enough. Our fixed income investments netted a solid performance with half the gains coming from our holdings of U.S. corporate credit. Currency Strategy Despite the strength in the euro and yen during the second quarter, our investment strategy continues to emphasize under weights in these major currencies with the biggest portion of portfolios allocated back to dollars and the British pound. Looking at the mess in Europe, it begs asking why the euro is still above U.S. $1.40 instead of trading somewhere below U.S.$1.30 or lower? Similarly, why is the yen not weaker with Japan's economy near a standstill, politics in disarray, the government intervening to stop the yen from rallying and the Bank of Japan intervening to buy equity ETFs in order to support the market? The 10-year CDS rate on Japanese government bonds (JGB) currently exceeds the yield on 10-year JGBs. The answer is that as bad as things are abroad, the dollar has been undermined by the dramatic contrast in the stance of the Federal Reserve with central banks in Europe and Japan. The ECB has been raising rates this year and shrinking its balance sheet; the Fed has been expanding its balance sheet. In addition, the failure of politicians to come to terms with public finances in the U.S. continues to undermine confidence in the status of the U.S. dollar as reserve currency with plenty of reports of countries attempting to diversify out of dollars. The dollar is clearly unloved. Under different circumstances, we would be even more invested in the U.S. dollar based on its pricing profile and macro factors. But the extreme stance of the Fed and budget gridlock have held dollar investors back. This is expected to change in the second half of the year. Confidence in the dollar could by buoyed dramatically if U.S. politicians are able to do what's right as Churchill predicted. As for a blueprint of what might be right, the President's own non-partisan commission on Fiscal Responsibility and Reform released a set of proposals at the end of 2010, which we found both sensible and credible. Therefore, policy divergences, which supported the euro in the first half should reverse in the second. The ECB should stop raising rates in the second half and may be forced to accept a lot of low-quality sovereign debt as collateral on emergency lending and not sterilize these purchases as it has done all year. In contrast, the Fed has ended its balance sheet expansion for the time being and set the bar very high for any new stimulus. We like the British pound. In many ways, it mirrors the same outlook as for the dollar. Its price has already weakened significantly relative to various benchmarks of value in line with the Bank of England's dovish line on supporting the economy in the face of extreme fiscal austerity. Easy money and tight fiscal policy are very negative for a currency. However, much of this appears already priced into sterling with Europe about to move in this direction. Our currency strategy has included a gradual reduction in exposure to many of the commodity currencies. Most of these currencies are extremely expensive by any yardstick other than commodity prices. Moreover, standard country analysis shows that in all cases the drag from the strong currencies is bigger than the terms-of-trade benefits pushing them higher. For example, real net exports are in deficit and monetary condition-type calculations show recession-like levels for New Zealand and Australia. Bull markets in these currencies are completely dependent on a sustained rally in commodities. However, our broader macro view about consolidation this year argues for a pause in this trend if not a more meaningful correction. We continue to pursue peripheral currencies where we see value and macro forces in support of strength. Currently, we own a basket of regional Asian currencies, which offer good long-term value prospects at a time when central banks in many of these countries are pre-occupied with fighting inflation.   Stanlib Global Bond comment - Jun 11 Friday, 23 March 2012 Fund Manager Comment Performance and Strategy We recorded our first quarter of slight underperformance since the crisis ended. What we gained on our duration and credit investments we lost on currency exposures. The biggest detractors from performance on the currency front were our large underweight positions in the yen and the euro. These were offset partially by our holdings in other currencies but not by enough. Our fixed income investments netted a solid performance with half the gains coming from our holdings of U.S. corporate credit. Currency Strategy Despite the strength in the euro and yen during the second quarter, our investment strategy continues to emphasize under weights in these major currencies with the biggest portion of portfolios allocated back to dollars and the British pound. Looking at the mess in Europe, it begs asking why the euro is still above U.S. $1.40 instead of trading somewhere below U.S.$1.30 or lower? Similarly, why is the yen not weaker with Japan's economy near a standstill, politics in disarray, the government intervening to stop the yen from rallying and the Bank of Japan intervening to buy equity ETFs in order to support the market? The 10-year CDS rate on Japanese government bonds (JGB) currently exceeds the yield on 10-year JGBs. The answer is that as bad as things are abroad, the dollar has been undermined by the dramatic contrast in the stance of the Federal Reserve with central banks in Europe and Japan. The ECB has been raising rates this year and shrinking its balance sheet; the Fed has been expanding its balance sheet. In addition, the failure of politicians to come to terms with public finances in the U.S. continues to undermine confidence in the status of the U.S. dollar as reserve currency with plenty of reports of countries attempting to diversify out of dollars. The dollar is clearly unloved. Under different circumstances, we would be even more invested in the U.S. dollar based on its pricing profile and macro factors. But the extreme stance of the Fed and budget gridlock have held dollar investors back. This is expected to change in the second half of the year. Confidence in the dollar could by buoyed dramatically if U.S. politicians are able to do what's right as Churchill predicted. As for a blueprint of what might be right, the President's own non-partisan commission on Fiscal Responsibility and Reform released a set of proposals at the end of 2010, which we found both sensible and credible. Therefore, policy divergences, which supported the euro in the first half should reverse in the second. The ECB should stop raising rates in the second half and may be forced to accept a lot of low-quality sovereign debt as collateral on emergency lending and not sterilize these purchases as it has done all year. In contrast, the Fed has ended its balance sheet expansion for the time being and set the bar very high for any new stimulus. We like the British pound. In many ways, it mirrors the same outlook as for the dollar. Its price has already weakened significantly relative to various benchmarks of value in line with the Bank of England's dovish line on supporting the economy in the face of extreme fiscal austerity. Easy money and tight fiscal policy are very negative for a currency. However, much of this appears already priced into sterling with Europe about to move in this direction. Our currency strategy has included a gradual reduction in exposure to many of the commodity currencies. Most of these currencies are extremely expensive by any yardstick other than commodity prices. Moreover, standard country analysis shows that in all cases the drag from the strong currencies is bigger than the terms-of-trade benefits pushing them higher. For example, real net exports are in deficit and monetary condition-type calculations show recession-like levels for New Zealand and Australia. Bull markets in these currencies are completely dependent on a sustained rally in commodities. However, our broader macro view about consolidation this year argues for a pause in this trend if not a more meaningful correction. We continue to pursue peripheral currencies where we see value and macro forces in support of strength. Currently, we own a basket of regional Asian currencies, which offer good long-term value prospects at a time when central banks in many of these countries are pre-occupied with fighting inflation. Interest Rate Strategy We continue to gradually reduce our investments in U.S. corporate credit. This is in line with the narrowing in spreads that has taken place over the past two years as well as our expectation that the macro forces are shifting from reflation to consolidation. It is possible that spreads could overshoot in the other direction and tighten even further in coming months. However, we look on credit opportunistically and will continue to shed exposure now that the value largely is out of the market and macro forces are shifting. We have a bar-belled strategy for U.S. government bonds, owning cash and very long-term Treasury bonds. The Treasury bond market performed well this past quarter as yields fell across the entire curve. As noted earlier, the strength at the long end of the curve in Treasuries and Bunds underscores the low growth outlook for the near term and the lack of any meaningful short-term inflation risk. Duration risk may grow with time but we are not overly concerned at the moment. Fears that there is no entity big enough to substitute for QE2 purchases from the Fed are over-exaggerated. U.S. commercial banks are sitting on hundreds of billions of cash assets which most likely will end up in this market, especially if U.S. politicians put together a credible budget-cutting plan. In the meantime, we will continue to adjust our thinking and duration as events play out this year. European bonds offer tantalizing spread opportunities and it is very clear that the authorities, although clumsy, will do everything to avoid a Lehman repeat. The U.S. gained control of its crisis in 2008/2009 with the Fed lending money to all financial institutions in exchange for questionable collateral. It did not sterilize these loans and expanded its balance sheet. In addition, the central bank then systematically bought new MBS issued by the agencies. The ECB views the debt crisis in Europe as a fiscal problem but if politicians continue to fumble the ball the central bank will have little choice but to step in to stabilize markets. It has already announced it will suspend its collateral rules. We are waiting for signs of a policy capitulation. We added incrementally to duration abroad. We don't like the Australian dollar; but, for the same reasons we do like the domestic bond market. It contributed significantly to performance in the second quarter. Similarly, we have maintained holdings of Brazilian bonds while hedging the currency in those accounts that can invest in this market. Mexican bonds offer an attractive risk-adjusted yield, as do South African bonds. In the current environment of consolidation and diverging regional growth patterns we will continue to take a rifle-shot approach to security and country selection. In summary, portfolio positioning for our broadest mandates continues to reflect a modest overweight in the U.S. dollar and significant underweights in the euro and the yen. Our underweight in Europe is mitigated partially through holdings in surrounding currencies including sterling. In addition, our underweight in the yen has been offset by positions in smaller emerging Asian economy currencies. We have below-benchmark exposure in the commodity currencies including the Brazilian Real while maintaining investments in their respective bond markets. Duration is slightly above benchmark with a significant portion of it derived from holdings in U.S. corporate credits and long-term U.S. treasury bonds. Once again we would like to thank our clients for their patronage. We appreciate the continued confidence you show in selecting us to manage your funds.   Stanlib Global Bond comment - Sep 11 Friday, 23 March 2012 Fund Manager Comment Performance and Strategy Global government bonds outperformed corporate bonds over the quarter. Risky assets, such as high-yield and emerging market debt, recorded negative returns as investors took profits in these asset classes. Inflation-linked bonds also underperformed nominal government bonds amid a flight to quality. However, we expect inflation to remain at elevated levels and above central bank targets in the near future US Treasuries were buoyed after the Federal Reserve announced that it would lengthen the maturities of its bond holdings in a bid to reduce long-term borrowing costs. Financial market conditions improved somewhat after European Union leaders announced a new three-year aid package for Greece and empowered the €440 billion rescue fund to buy debt across stressed Euro zone economies. However, market volatility returned, with contagion spreading to Spain and Italy and pushing market interest rates higher. Against this backdrop, the European Central Bank purchased Italian and Spanish debt to soften market rates. In the global corporate bond market, credit spreads widened regardless of fundamentals, over the quarter led by financials, as fears of a Greek default and contagion thereof loomed high. The fund underperformed its benchmark over the quarter. As investors became risk averse, the fund's overweight position in BBB and high yield bonds proved detrimental to performance. Financials underperformed Name selection coupled with the overweight stance in banks, primarily Subordinated Lower Tier II and Tier I debt, hurt returns. Financials held back returns as spreads widened considerably. In addition, the downgrades of Bank of America, Citigroup and Wells Fargo further added to the stress in the market. The overweight stance in Commerzbank, Intesa Sanpaolo, Barclays and insurer Swiss Re detracted from performance. Overweight industrials and communications hurt returns The fund's exposure to lead-recycler Eco-Bat within industrials, and the overweight position in media and entertainment company NBC Universal Media held back performance. The overweight exposure to asset-backed securities also hampered performance. However, positive issue selection within the sector mitigated losses. Term structure added value The overweight position in the long-end of the US yield curve proved beneficial as yields on longer-dated bonds fell more than those on the short-term ones. In addition, the holdings in the 10-year part of the European curve outperformed.   Merger Thursday, 6 October 2011 Official Announcement The US Dollar Bond, European Bond and Sterling Bond funds all merged into the Global Bond Fund effective 29/09/2011   Stanlib Global Bond comment - Mar 11 Tuesday, 14 June 2011 Fund Manager Comment Fund Review The greatest period of refl ation in modern economic history is coming to a close. Since late 2008, the right tactic has been to bet that these refl ationary tactics would not only work to prevent a depression but would re-ignite global growth. Risk assets ranging from equities to emerging markets, corporate and high yielding debt along with commodities have rallied strongly. The world economy has rebounded and, in our opinion, is on the path to an unbalanced but self-sustaining expansion. The key risk to our view is the price of energy. The prospect of another major energy shock is a signifi cant and disheartening risk. Prices cannot keep rising indefi nitely as noted earlier. Many analysts including the IMF have concluded that the world can withstand even higher energy prices. This is not our view. We are concerned that debt levels and unemployment rates remain very high in the developed world. Rates may not have to go up at all for consumer spending fi repower to be exhausted by a surge in energy prices. In the current environment of building uncertainty, we continue to focus on our broad strategy of looking for the combination of pricing and macro information which suggests good value opportunities in our investable universe of currencies and fi xed-income markets. Looking Ahead The majority of the duration in the portfolio comes from holding of our U.S. corporate bonds and non-agency Mortgage Backed Securities. This may seem controversial in view of the near universal bearishness that currently seems to exist regarding the outlook for U.S. debt. However, the spreads between the short and long end of the yield curve had reached historic extremes. Moreover, the prospect of the Fed beginning to exit some of its exceptional stimulus programs seemed more constructive for bonds than negative. We remain underweight the Yen and Euro in favour of the British Pound Sterling. We do like the British Pound sterling. The U.K. government has taken aggressive measures to get its fi scal house in order with a plan that imposes a fi scal drag equal to about 9% of GDP on the British economy over the next 5 years. Everyone knew this was coming. All political parties had been discussing the inevitability of this adjustment prior to the last election. The measures chosen to reduce the defi cit were based primarily on spending reductions and less so on tax increases but the latter have been raised and the impact on the economy is evident in very soggy demand indicators early in the new year. The British pound, however, has already fallen in anticipation of any short-term drag from these measures and it is one of the few currencies in the world trading at a discount to its PPP against the U.S. dollar. We expect the economy will do better than the generally very negative expectations attendant the fi scal restraint. Our dislike for the yen and euro would normally lead us to the U.S. dollar, and in many accounts we are overweight. We think that the front end of the U.S. yield curve and the U.S. dollar are two of the biggest pricing anomalies in the global economy at the moment, one obviously related to the other. Depending on the index you use, the dollar is trading near or at all-time lows. This kind of price profi le suggests the kind of mean-reversion potential we normally look for. On top of the pricing profi le in the dollar, exports have surged back to their previous highs, capital spending is on the rise, employment is fi nally gaining traction and Fed Chairman Bernanke stated to Congress in February that the tail risk of defl ation was negligible, removing the main reason for QE2 in the fi rst place. It seems that the negative outlook refl ected in the slide of the dollar may be overdone.   Stanlib Global Bond comment - Dec 10 Friday, 25 February 2011 Fund Manager Comment Net of fees, the portfolio outperformed the Barclays Global Aggregate by 0.4% during the fourth quarter. Global bonds sold-off noticeably in the quarter despite the announcement of a $600bn quantitative easing program by the Federal Reserve. Globally yield curves have steepened reflecting an upward bias in inflation. This move has been supported by improved economic data, including an improvement in consumer credit spending and US retail sales. In addition, concerns around rising commodity prices and the impact on inflation also pushed yields higher. Also pressuring higher yields was renewed contagion in peripheral EMU bond markets - particularly in Italy, Ireland and Spain. Thanks to this contagion, the European bond market was the worst performing region. In the United States, stronger growth and rising risk appetite limited bond flows as investors sought out higher yielding assets. Although Japanese bonds declined, they performed relatively well thanks to still slow growth and outright deflation, which attracted investors to the market despite their very low nominal yields. The US dollar weakened during the quarter as commodity prices continued their ascent and the FED maintained an extremely accommodative monetary stance. The best performing currencies were those of commodity producers including the New Zealand dollar (up 6.3%), Australian dollar (up 5.8%), South African rand (up 5.0%) and Canadian dollar (up 3.1%). The Swiss franc (up 5.1%) also performed well and it appears that money is fl owing out of various parts of EMU (priced in euros) and into Swiss banks (after being converted to franc), thus pressuring the franc higher, particularly against the euro. Problems plaguing the eurozone weighed on other European currencies along with the euro (down 1.8%). The Norwegian krone (up 0.9%) and Swedish krona (up 0.4%) underperformed while the British pound (down 0.7%) and Danish krone (down 1.8%) actually depreciated. Analysts' models suggest that 10-year yields are close to 4% implying markets are considerably overvalued! Treasuries still offer a hedge to the down-side and have a place in a balanced portfolio, however corporate credit offers better return potential. In December yields of A-rated investment grade corporate bonds in the US narrowed 14 basis points ending the year 156 basis points ahead of 10-year US treasuries. Corporate credit is therefore favored over treasuries and this is supported by strong fundamentals within corporate America and the anticipation of further narrowing of spreads.   Stanlib Global Bond comment - Sep 10 Wednesday, 5 January 2011 Fund Manager Comment Investment Performance and Strategy Your portfolios delivered strong absolute and relative returns again during the third quarter. The main driver for this return was duration due to our positioning in longer dated bonds in some of the better performing European countries in the International portfolios and in U.S. corporate credit in the Global portfolios. The anxiety about economic growth led to sharp declines in government bonds. Spreads remained tight and yields on corporate bonds followed suit. In light of the developments which drove the dollar lower, we increased our non-dollar exposure through purchases of more of the peripheral high beta European currencies such as the Hungarian forint, where your guidelines allowed, and took hedges off our Australian dollar position. Nonetheless, the incremental contribution of currency gains was slightly negative due mainly to the relentless upward tendency of the Japanese yen, which we continue to avoid. Looking into the future, we think that price risk continues to build up in U.S. and European low-yielding government debt. Nominal bond yields are significantly below levels of nominal GDP growth which we regard as sustainable. Treasury yields are only slightly higher than they were in 2008 at the peak of the crisis. But in 2008 investors were worried about deflation. Current measures of inflation show that investors increasingly worry that central bank efforts to anchor the long end of the curve are creating inflation risks. At the moment, reduced expectations of the economy in combination with perceptions of massive purchases of government securities by the Fed, Bank of England and the Bank of Japan act to keep yields down. If the economic scenario we envision comes to pass, central banks will not have a reason to intervene in public bond markets as aggressively as currently expected. We exited the third quarter with your portfolios reflecting less duration than when the quarter started. We expect to continue reducing duration gradually during the current quarter. Our Global portfolios continue to hold non-agency CMOs. Year to date as of September 30, the total return on these securities has been about 19% and about 17% respectively for our representative accounts. The aftershock of the expiring tax credit is likely to linger for the remainder of the year. Nonetheless, loss-adjusted yields in this sector still offer 200-400 basis point yield pick up from other credit sectors and should generate outperformance over the medium term, notwithstanding the potential for price volatility over the balance of the year. The currency outlook will be particularly sensitive to the economic scenario. At the end of the quarter, expectations of an aggressive second round of quantitative easing by the Fed sent the dollar sliding. The euro has become expensive once more and the dollar is looking well valued based on its real-effective value. In addition, our economic scenario implies that the Fed will not have cause to continue purchasing Treasury securities, or at least not as aggressively as expected at the moment. The implication is a potential swing back to the dollar later this quarter or beyond. Catalysts for this shift would be signs that employment is gaining enough traction to alter the Fed's view about the balance of economic risks and the need for more quantitative easing. Additionally, the outcome of the November U.S. Congressional elections could have a significant impact on U.S. fiscal policy with important implications for the dollar. We do not anticipate any change in our strategy on the yen. Recent intervention on the part of the Japanese authorities to weaken the currency is consistent with the broader view we have taken about this economy. The yen has rallied 47% against the euro since 2008 and 80% against the Korean won and 34% against the yuan since 2007. Exports are the main incremental growth driver for the economy. Pressure for a reduction in the level of the currency will continue to build. In addition, we continue to see no value and only risk in owning Japanese bonds where yields are close to 1% and provide no capital appreciation potential or coupon protection against a rapidly deteriorating fiscal position. Finally, we continue to pursue a strategy of investing in currencies and countries outside of the developed world (subject to investment guidelines). Capital is ultimately attracted to areas where there is a return on investment. It is very clear that the emerging area of the world offers growth while many areas of the developed world continue to struggle with fiscal consolidation and the aftermath of the financial crisis.   Stanlib Global Bond comment - Jun 10 Thursday, 9 September 2010 Fund Manager Comment A little over a year ago investor sentiment was dominated by absolute fear. Fear that the financial system would melt and that the world might already be in depression. Fear that the way of life we had become accustomed to in the post-war period was about to change. Confidence collapsed. Policy makers worldwide reacted. They launched an unprecedented combination of stimulus measures and in doing so opened up a new chapter in financial experimentation which has created great uncertainty, risk and opportunity. Our view is that confidence should hold and the global economy will keep expanding although it may take a few months for investor sentiment to follow suit. It is not a normal recovery. The U.S. private sector is deleveraging. Growth could be tepid next year and mixed in different parts of the world. But sustained confidence in an environment of near zero interest rates should subsidize corporate profits and encourage investors out of risk-free low yielding securities into higher-yielding markets and the real economy. The main risk to our view hinges on the policy outlook and its impact on investor and business confidence. The main performance generator was the heavy underweight in the euro, the latter falling almost 10% during the quarter. The large overweighting in long dated U.S. assets helped the portfolio and produced in aggregate a low double digit return. Also, your portfolios did not own any European credit or securities in the four troubled government bond markets in the region. Detracting from performance was the yen which your portfolios were also heavily underweight. The currency rallied roughly 6%. Some of the peripheral European currencies you own also detracted from performance. Lastly, the sinking of the South Korean naval vessel and resulting geopolitical uncertainty hurt performance as a result of your holdings of the South Korean won. We view the latter as a temporary development. Going into the fi rst half of 2010, the world was overwhelmingly bearish the dollar. In our meetings with clients, we met a lot of skepticism and concern about our overweight in the dollar. As 2010 progressed, investor sentiment to the dollar became more constructive because of improving economic signs and a steady reduction in the Fed's quantitative easing operations not to mention the crisis in Europe and the ECB's aggressive balance sheet expansion. The euro fell to below 1.20 during the second quarter which is roughly in line with our estimates of long-term equilibrium. Going into the second half of the year, sentiment appears to have completely reversed from the beginning of the year. Investors are negative on Europe and skeptical about efforts to stabilize the financial system. A surprise could be that this skepticism moderates amid signs of various European governments taking action not only to deal with their deficits in the short-term but over the medium term as well. In other words, the headline grabbing worst case scenario never comes to pass. We continue to look for diversification out of credit and currency markets of the high-debt developed world into the low indebted and more rapidly growing emerging world where our mandates permit.   Fund Name Changed Thursday, 22 July 2010 Official Announcement The STANLIB Offshore International Bond Fund will change it's name to STANLIB Global Bond Fund, effective from 22 July 2010   Stanlib International Bond comment - Mar 10 Tuesday, 29 June 2010 Fund Manager Comment Currencies Strategy Our currency strategy remains broadly unchanged although there have been some noteworthy shifts in the portfolio to position for what we think lies ahead. Within the G3 currencies we remain concentrated in the dollar with minimal holdings of yen or euro. We remain constructive on the dollar because the U.S. economy continues to show strength relative to both the euro area and Japan. The Fed has indicated that rates will remain on hold for a while to come but we believe that there is significant risk at the front of the curve. Conditions could change significantly in the next few months if employment expands as much as we think. The Federal Funds rate, currently close to zero, could close the year somewhere closer to 1-2%. In contrast, the Greek debt crisis has propelled Europe towards very tight fiscal policy and sustained easy monetary policy. This combination is usually negative for a currency. Last quarter we highlighted how expensive the euro was relative to traditional benchmarks of value such as real-traded weighted exchange rates and purchasing power parity. The first quarter's plunge in the currency has reduced this overvaluation significantly but it remains above levels we think are consistent with a more neutral price picture. The currency is oversold at the moment and may stabilize or even rebound in coming weeks due to some sort of resolution of the Greek crisis. Nonetheless, the fundamentals remain negative. Similarly, we continue to shun the yen. Our views on this currency are well known to our clients. We have described in detail the full extent of the problem facing public finances. A declining household savings rate means that funding the government's financing will come from corporate savings. A strengthening nominal yen does not help this process. Japan has become more competitive through a brutal process of domestic deflation. However, the new government has continued to press the Bank of Japan to fight deflation. With interest rates already low and fiscal policy stretched, the only real avenue is a weaker nominal exchange rate. The central bank has indicated that it will expand its' quantitative easing operations while other major central banks start to move in the opposite direction. Outside of these three major currencies your portfolios have exposure to other European currencies by way of the Swedish and Norwegian currencies, the Polish zloty and most importantly the British pound. Our review process indicates that these currencies offer much better intrinsic value over the euro. One of our longer-term investment themes has been to underweight the G3 currencies and to overweight currencies in the rest of the world and in particular several emerging market currencies. Marginal growth in the global economy will come from the emerging middle kingdom of the world and we expect capital to migrate to these areas and bid up their respective currencies. Interest Rates Duration in our representative global opportunistic accounts is slightly above the index level but with the portfolio structure barbelled. We think there is some risk of interest rates rising along the yield curve but most of the risk is concentrated at the short end of the global yield curve. Most of the duration in the portfolio is concentrated in our holdings of U.S. corporate and mortgage backed securities. As of the end of the quarter, investment grade corporate bonds made up 22.7% of the Global Opportunistic Fixed Income portfolio. Our holdings of non agency collateralized mortgage obligations ("CMO") made up 12.6% of the Global Opportunistic portfolios. Last year's returns from your holdings of corporate bonds were driven by a combination of the severe dislocation in spreads that existed at the beginning of the year and the aggressive policies of reflation that took place in the U.S. and around the world. Since purchase, your corporate holdings have added more than 3% in alpha relative to owning similar duration in U.S. Treasuries. The compression in corporate spreads is very advanced and we have begun a gradual process of reducing exposure which we expect to continue. Nonetheless, based on historical averages for spread normalization during economic recoveries, 2010 could provide another 10% of retracement from the extremes. We continue to believe that valuations are still attractive in the non-agency CMO market. We are seeing the first signs of a slowdown in the delinquency pipeline and lower loss severity and expect further upside this year although, as with corporate, not as much upside as we have received in 2009. The main threat to these securities is the housing recovery and, in particular, the foreclosure pipeline. About 5.5 million mortgages are seriously delinquent or in some stage of foreclosure. The speed at which this supply comes on to the market is the key to gauging risk to the housing recovery. We think that the government will do whatever it takes to prevent this supply from overwhelming the market. The recent HAMP (Home Affordable Modification Program) Debt Forgiveness and FHA refinance programs are all consistent with this expectation. The path of mortgage rates will also have a bearing on the housing outlook. The Fed is no longer absorbing supply and there are issues concerning the general trend in rates as we noted earlier. Nonetheless, any upward pressure on the general level of rates will coincide with employment and income growth which should overcome at least initially modest increases in borrowing costs. Your portfolios also have significant holdings in long-term U.S. and U.K. sovereign bonds. These securities were originally held throughout 2009 as a hedge against the possibility that our economic scenario might not play out and instead that the world would get what everyone worried about which was a deflationary depression. Yields have backed up throughout the last 5 quarters due mainly to the influence of a renormalizing economic cycle. As we noted earlier there is still some price risk in these securities going forward. However, we think most of the risk in the yield curve is at the short end.   Stanlib International Bond comment - Dec 09 Friday, 19 March 2010 Fund Manager Comment Improved credit fundamentals led to credit spreads tightening over the quarter and I gradually increased the fund's credit beta. The portfolio carries an attractive yield and my priority has been to look for relative value within sectors such as financials. Furthermore, yield curves are very steep and I have started to implement a flattening strategy primarily on the US curve. Increased exposure to banks and retained overweight in ASS I have added to the overweight stance in subordinated debt through Lower Tier II bonds and senior debt, while reducing the exposure to Tier I paper. I added to the holdings in Lloyds and Bank of America. I also maintained the overweight in ABS holdings amid improving liquidity and price appreciation in the sector. Retained overall long duration position The fund is still overweight duration relative to benchmark, essentially in Europe and Japan. However, I am underweight in the US and UK amid optimistic growth potential in these economies relative to Europe and Japan. Took profits in US inflation-linked bonds, added Japanese linkers Over the quarter, I sold off the exposure to US inflation-linked bonds as they rallied strongly and bought back some Japanese linkers. I see further upside potential in Japanese inflation breakevens as the government continues to buy back its inflationlinked debt.   Stanlib International Bond comment - Sep 09 Monday, 30 November 2009 Fund Manager Comment Over the quarter, the fund outperformed its benchmark. The underlying risk appetite continued to improve across regions amid positive economic data releases and credit spreads narrowed, boosting corporate bonds. Consequently, the fund's overweight exposure to corporate bonds, in particular BBB-rated securities buoyed relative returns. Furthermore, an overweight position in banks and insurers, in particular, subordinated debt (Lower Tier II & Tier I) continued to outperform. Holdings such as Bank of America, Lloyds TSB, Credit Logement and European insurance company Eureko, proved beneficial. Issue selection within the consumers and industrials sectors further aided relative returns. The fund's overweight positions in Imperial Tobacco, pharmaceuticals company Pfizer and commodities trader Glencore boosted returns.   Stanlib International Bond comment - Jun 09 Friday, 18 September 2009 Fund Manager Comment Over the quarter, the fund outperformed its benchmark. Credit markets improved over the period as conditions stabilised and spreads tightened across all sectors. Consequently, the fund's overweight exposure to corporate bonds proved beneficial. Furthermore, an overweight position in banks, in particular, subordinated debt (Lower Tier II and Tier I) supported relative returns. Credit spreads within banks tightened, boosting holdings including Bank of America, Rabobank and Barclays. An improvement in risk appetite led to the strong performance of emerging market and high yield debt and the fund's holdings in the Russian bank VTB aided returns. Security selection within the telecommunications and utilities sectors also buoyed returns. Additionally, the fund's holdings in the US and Japanese inflation-linked bonds helped performance as they outperformed conventional government bonds. Conversely, an overweight position in asset-backed securities tempered returns; the sector underperformed the credit market recovery.   Stanlib International Bond comment - Dec 08 Wednesday, 25 March 2009 Fund Manager Comment Over the quarter, the fund underperformed its benchmark. The weakness in credit markets intensified over the quarter, caused by a wave of investor de-leveraging and growing uncertainty about the prospects for the global economy. Subsequently, credit spreads widened and the fund's holdings in the sector detracted from performance. The reduction in investors' risk appetite also hurt emerging-market and high yield bonds. Despite being underweight banks, an exposure to selected Tier I and Tier II issues held back relative performance as the sector reeled under increased operational risks and uncertainty about their earnings potential. However, I continue to hold these names as the sector is expected to improve with an increase in new issuance over the coming months. Holdings in inflation-linked bonds in the US, Europe and Japan also hurt returns as mounting global deflationary pressures reduced the demand for these bonds. Conversely, a yield curve steepening strategy in the UK proved beneficial given that yields on short-term bonds fell more than those on longer-dated paper.   Stanlib International Bond comment - Sep 08 Friday, 14 November 2008 Fund Manager Comment Over the quarter, the fund underperformed its benchmark. As the crisis gained momentum, credit spreads widened significantly and investor sentiment worsened. Subsequently,the fund's exposure to credit, including asset-backed securities, hurt relative returns. Additionally, the pronounced reduction in investors' risk appetite resulted in a retrenchment in short-term capital flows to emerging-market and high yield bonds. As a result, holdings within these sectors also detracted from performance. Despite being underweight banks, an exposure to selected holdings such as Natixis held back relative performance, as the sector came under severe stress fuelled by increasing rumours surrounding a large number of banks and their access to liquidity. In contrast, an underweight exposure to brokers, namely Lehman Brothers, boosted relative returns. Moreover, a yield curve steepening strategy in Europe proved beneficial given that yields on short-term bonds fell more than those on longer-dated paper.   Stanlib International Bond comment - Jun 08 Thursday, 18 September 2008 Fund Manager Comment The fund outperformed its benchmark over the quarter. As a result of the actions taken by central banks globally, financial markets stabilised over the period. Investor sentiment improved and, subsequently, the fund's exposure to credit proved rewarding. Moreover, a tightening of spreads boosted holdings within the emerging-market and high-yield sectors. In particular, Hungarian telecommunications company Invitel and Russia-based TransCapital Bank contributed. Selected holdings such as Bank of Scotland in the banking sector also aided returns, as did positions in the industrials sector, which remained resilient amid the global economic slowdown. Furthermore, holdings in inflation-linked bonds were supportive amid rising inflationary indicators, propelled by increasing oil and food prices globally. Conversely, the asset-backed securities held in the portfolio detracted, with continued mark-downs in the sector even as the credit markets recovered.   Stanlib International Bond comment - Mar 08 Friday, 11 July 2008 Fund Manager Comment An exposure to asset-backed securities (ABS) held back performance; this market remained in trouble amid successive re-pricing of SIVs. However, I remain comfortable with the quality of the holdings, and there has been no material deterioration in their fundamentals. Credit spreads widened sharply, as concerns about monoline bond insurers and forced selling by leveraged investors increased demand for high-quality assets. Subsequently, high-yield bonds fared poorly, hurting the fund's returns. Selected holdings in the banking sector, particularly Mizuho Finance and BayernLB Capital, also detracted, following continued write-downs by financial institutions. Nevertheless, the widening of spreads in this sector has created interesting investment opportunities. On a positive note, the fund benefited from a US flattener added in March, as yields on short-dated bonds fell less than those on longer-dated maturities over the month.   Stanlib International Bond comment - Dec 07 Thursday, 6 March 2008 Fund Manager Comment The fund's exposure to asset-backed securities (ABS) held back returns after downgrades from rating agencies and increased concerns about the scale of possible losses from the financial market turmoil led to a widening of spreads. However, the vast majority of ABS paper held in the portfolio is of good quality, and there has been no deterioration in their underlying asset quality. The widening of spreads further held back returns through an overweight in selected emerging market and highyield bonds, as investors favoured high-quality assets. On a positive note, the fund benefited from its holdings in inflation-linked bonds on the back of rising energy and food prices in the US, Europe and Japan, which increased inflationary expectations.   Stanlib International Bond comment - Sep 07 Tuesday, 27 November 2007 Fund Manager Comment Over the quarter, the fund underperformed its benchmark. The fund's exposure to corporate bonds detracted from performance. Credit spreads widened due to a tightening of liquidity caused by US sub-prime problems. However, at these wider spread levels the manager views this asset class as attractive and continues to hold selective corporate issues. The asset-backed securities (ABS) sector held back returns, as issuers were forced to value a number of issues at market prices, which declined along with investor's risk appetite. However, this was a technical rather than a fundamental problem and the underlying assets of the ABS that the fund currently holds, are of good quality. The widening of credit spreads further impacted performance through an overweight in Emerging Market debt. On a positive note, the fund benefited from a steepening of the US yield curve. Yields on short-dated bonds fell more than those on long-dated bonds over the period.   Stanlib International Bond comment - Jun 07 Tuesday, 25 September 2007 Fund Manager Comment During the quarter, the fund underperformed its benchmark on a net-of-fees basis. The key detractor from performance was the fund's position in Japanese floating rate notes. These bonds underperformed, as the Japanese government bond curve flattened. On a positive note, the fund's short-duration position in Europe contributed to relative performance, as bond yields rose over the quarter amid expectations of further interest rate rises. Additionally, a short-duration position in the US also boosted returns; yields rose over the quarter in light of stronger-than-expected economic data. Inflation-linked bonds outperformed against a background of rising oil prices and inflationary concerns. Despite credit spreads widening towards the end of the quarter, the fund's overweight position in emerging debt and high-yield bonds contributed to relative performance.   Stanlib International Bond comment - Mar 07 Thursday, 24 May 2007 Fund Manager Comment During the quarter, the fund outperformed its benchmark, the Lehman Brothers Global Aggregate G5 ex-MBS Index. The fund's short-duration position in Europe was the key contributor to performance amid increased expectations of rising interest rates over the quarter. Holdings in US Treasury Inflation-Protected Securities (TIPS) also boosted returns as break-even inflation rates rose during the review period in light of higher inflationary concerns. The fund's exposure to high-quality asset-backed securities also added to relative performance. Exposure to Emerging Market bonds, particularly in Brazil, enhanced returns. However, exposure to Eastern European issues, notably banks in Kazakhstan, marginally restrained returns, as spreads widened due to an abundance of supply.   Stanlib International Bond comment - Sep 06 Monday, 26 March 2007 Fund Manager Comment During the quarter, the fund returned 1.7% in US dollar terms, underperforming the benchmark index, which returned 1.9% over the same period.The main detractors from performance were a short duration relative to the benchmark and a related cross-market trade. The fund was underweight US dollar securities in favour of sterling and Japanese yen positions. This hurt performance; US dollar bond markets rallied as commodities prices fell, limiting inflation fears, and the Federal Reserve paused after raising rates at seventeen previous meetings. Bulleted positions (where a large proportion of bonds are held at a particular maturity) taken to benefit from a change in the shape of the yield curve did well in Japan, Europe and the UK. The fund's lower quality names and emerging-market bonds did well, after volatility eased from earlier in the summer. The fund's holding in hybrid debt (subordinated debt with equity like characteristics) also added to performance, following their inclusion by Lehman Brothers indices as well as a favourable ruling by the National Association of Insurance Commissioners   Stanlib International Bond comment - Dec 06 Monday, 26 March 2007 Fund Manager Comment Over the quarter, the fund returned 1.6%, underperforming the benchmark, which returned 1.9% over the same period. The main detractor from performance was the fund's position in Japanese index-linked bonds, which underperformed as growth in the region has been below expectations. However, the fund manager has retained the position as part of his overall Japanese exposure. Stock selection within emerging markets also hampered returns, as the fund's Eastern European issuers underperformed relative to other emerging market debt. On a positive note, the fund's exposure to lower quality bonds did well, as these securities gained over the period.   Stanlib International Bond comment - Jun 06 Tuesday, 28 November 2006 Fund Manager Comment Over the quarter, the fund returned 2.5% in US dollar terms, underperforming the benchmark index, which returned 2.9% over the same period. As in the previous quarter, the major market yield curves were well correlated, limiting the effectiveness of cross-market trades. However, a short position in debt denominated in US dollars, with a corresponding overweight to sterling and yen, performed well.Defensive asset-backed names also did well amid heightened (local) market volatility. Stock picking was a significant driver of returns as a general move away from risky assets, and consequently a decrease in liquidity, caused the broad credit market to perform poorly. Holdings in Indian convertible bonds did particularly well, as did a defensive position in short-dated debt issued by General Motors. Detractors from performance came from the fund's holding in hybrid debt. They are under investigation by the US Securities and exchange commission as to their classification; a favourable ruling would cause significant outperformance. However, while ambiguity remains, their effect on the fund's performance has proved negative.   Stanlib International Bond comment - Mar 06 Friday, 25 August 2006 Fund Manager Comment During the quarter, the fund returned -0.2% in US dollar terms, outperforming the benchmark index, which returned - 0.3% over the same period. Fund performance was driven by small, uncorrelated strategies. These included exposure to high-yield bonds and bonds from emerging markets. Brazilian government bonds performed particularly well in January and February as the government announced buybacks of its 'Brady' debt. Major markets were closely correlated over the quarter, reducing the effectiveness of cross-market trades intended to exploit inefficiencies between the markets. However, performance was boosted by the fund's slightly overweight exposure to Japan, which performed strongly on a relative basis, and its underweight exposure to the US. Exposure to European bonds with an average life of seven years proved positive as yields of longer-dated bonds rose further than those of short-dated bonds. Stock selection amongst corporate bonds proved beneficial; in particular, bonds from issuers such as Lazard and Bank of Moscow performed well. During the first quarter, the fund manager removed his curve-flattening strategy in the US. The fund has similar positions in Europe and Japan, as the fund manager anticipates that the yield curve will steepen in both countries. The fund retained overweight positions in selected bonds in emerging markets and asset-backed securities in order to help maintain a diverse portfolio, given current risks in the market from leveraged buyouts and M&A. The fund retained its underweight exposure to government bonds in favour of asset-backed securities, which offer additional yield, are less susceptible to event risk, and are not perfectly correlated with other corporate bonds.   Standard Bank International Bond comment - Sep 05 Tuesday, 20 December 2005 Fund Manager Comment During the quarter, the portfolio's underweight exposure to the US bond market was the primary driver of performance of the quarter. In September, US treasuries underperformed government bonds in Europe and Japan, as investors reassessed the impact of the hurricanes in the Gulf of Mexico, and their impact on monetary policy. The fund also benefited from its allocation to Japanese government bonds. While some expect the Bank of Japan to change its zero interest rate policy, this is generally believed to be unlikely in the near term. The portfolio's overweight exposure to corporate bonds proved beneficial. Corporate bonds outperformed government debt in most major markets, due to ongoing demand and stable credit quality. Performance was further boosted by the portfolio's exposure to Russian debt, and high-conviction positions such as the fund's holding in Italian bank Banco Populare di Lodi. At the end of the third quarter, the manager had increased the fund's exposure to index-linked bonds, on the basis that they offer cheap protection from rising inflation, given the current market environment, and there is no risk of default. The manager increased the extent of the fund's underweight exposure to the US, in favor of Europe and Japan. This decision was made on the basis that the Federal Reserve is likely to keep raising interest rates, while a rate rise from the Bank of Japan or European Central Bank is considered unlikely. The manager sees good visibility in the credit market over the next six months and, with credit default levels near historic lows, is maintaining the fund's exposure to the corporate market.   Standard Bank International Bond comment - Jun 05 Thursday, 17 November 2005 Fund Manager Comment The manager added to the fund's corporate exposure as spreads widened during the first half of the quarter, as US carmakers GM and Ford were downgraded to high-yield status. Spreads then tightened during the second half of the quarter, as structural demand from institutional investors returned to support the market, and this was positive for fund performance. Both government bonds and investment-grade issues outperformed the high-yield asset class, and the fund benefited from its overweight exposure to government issues. Additionally, the portfolio's exposure to asset-backed securities proved rewarding, as did the fund's positioning across the sterling yield curve, where a strategy known as a 'steepening trade' worked well. However, on the negative side, the fund held an overweight position within Japanese and eurodenominated debt at the expense of US dollar securities and this hurt performance as US treasuries unexpectedly rallied towards the end of the quarter. At the end of the second quarter, the portfolio retained its overweight exposure to government securities at the expense of higher-quality AAA and AA-rated corporate bonds, although this exposure was somewhat reduced. This reflects the manager's belief that these issues look expensive relative to historic levels and that further upside is limited. At the other end of the credit quality spectrum, exposure to sub-investment grade bonds was reduced during the quarter, as valuations in this asset class continue to look expensive.   Standard Bank International Bond comment - Mar 05 Friday, 1 July 2005 Fund Manager Comment Based on Fidelity's quantitative models, the portfolio held a bias in favour of euro and yen-denominated bonds, which offset its lower exposure to US dollar-denominated securities. This strategy proved particularly rewarding over the quarter. In addition, the fund's yield curve positioning was a primary contributor to returns during the period. Changes in the interest rate environment saw yield curves change in shape, which provided opportunities for the portfolio manager to benefit from in-house quantitative analysis. Issuer selection was also positive for returns and highlights the importance of thorough credit analysis in the investment process. The portfolio retained its overweight position in government securities over the quarter. In terms of credit exposure, the largest underweight holdings were among higher-quality corporate bonds, where issues look particularly expensive relative to historic levels. At the other end of the credit-quality scale, the fund maintained a 2% overweight position in sub-investment grade or high-yield bonds. This position represents a small proportion of overall fund assets but includes bonds where Fidelity's credit analysts have a high level of conviction about each company's future prospects.   Standard Bank International Bond comment - Dec 04 Thursday, 17 March 2005 Fund Manager Comment The fund's yield curve position was a primary contributor to returns during the period. Changes to the interest- rate environment saw yield curves change in shape, which provided opportunities for the portfolio manager to benefit from in- house quantitative analysis. In particular, the portfolio remained positioned to benefit from further flattening of the US yield curve. The fund's exposure to non-government bonds, particularly BBB- rated US dollar- denominated issues, proved rewarding. At sector level, securities issued by government agencies and supranational organisations were also positive. The fund manager maintained the fund's significant exposure to the corporate market, although this was reduced to some extent over the quarter. In terms of credit exposure, the manager reduced the portfolio's weighting in BBB- rated issues in favour of government- issued debt. The manager does not believe that current spread levels compensate for the additional risk of these bonds, which therefore look expensive relative to other fixed- income assets. Weightings within the corporate sector are primarily a by-product of this process of issue selection, although the manager currently favours the telecommunications and automobile sectors.   Standard Bank International Bond comment - Sep 04 Monday, 29 November 2004 Fund Manager Comment During the quarter, the fund returned 3.4%, marginally under-performing the benchmark index, which returned 3.5% over the same period. At sector level, the portfolio's holdings of securities issued by government agencies and supranational organizations proved negative. From a more positive perspective, issuer selection was the primary driver of performance over the period and highlights the importance of fundamental credit analysis in the investment process. The fund also benefited from its holdings in lower-rated euro-denominated bonds, which performed relatively well. Changes in the shape of the yield curve proved rewarding to returns during the period. In particular, a rise in US yields over the quarter was positive. All non-US dollar positions were fully hedged to eliminate currency risk.

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