It was the Rand which once again dominated performance in September, with the Local currency strengthening by 7% over the month. Given the fund's -20% holding in direct offshore equities, this detracted approximately 1.25% of performance during September.

Other detractors from performance during the month included Sun International (which has been a stellar performer in recent months and remains a conviction call), Astoria Investments (Rand strength), a lack of exposure to Standard Bank (up 5%; not our preferred banking exposure) and Aspen, which dropped 12% during the month on the back of results which disappointed the market.

On the positive front, our positions in Transaction Capital, Foschini and EOH Holdings added value, as did the Lack of exposure to Medidinic (down 16%) and SABMiller. From a positioning perspective, we believe the risks to the Rand are becoming fairly balanced in the sense that it is becoming clear that interest rate carry is likely to continue to be a supportive factor for yielding currencies (such as the ZAR), while on the other hand political "event risk" continues to lurk in SA.

We have moderately reduced our offshore exposure while increasing exposure to Local Banks and discretionary retailers, where earnings risks appear to be baked into compelling valuations (4-7% dividend yields). Our general positioning is underweight JSE-Listed Rand hedges (largely an SAB/ABI call; valuation concerns), overweight discretionary consumer stocks and maintaining a sizeable direct offshore weighting.

Our conviction bottom-up stock picks include Sun International, Advtech (fwd 20x, but we have high conviction in sustained 20%+ EPS growth) and RMI Holdings (OUTsurance is 60% of value; growing earnings at 20%). From a resources perspective, the recent rally in Metallurgical coal prices (up 160% H two months) have pushed spot valuation multiples down across the diversified mining sector.

While we remain concerned that the some of the drivers of this coal price rally could prove transient (weather issues in Australia), we believe consensus earnings will need to be materially upgraded if current pricing persists. We believe some exposure is warranted, and we are currently broadly neutral on Diversified Miners. Anglo American is our preferred entry point.

June saw markets being whipsawed by the events of Brexit, with the Rand weakness which characterised May reversing course sharply in June on the back of the collapse of the British pound and the ensuing commitments from the ECB and Bank of England to provide ample liquidity to markets. The implication of lower for longer interest rates once again drove demand for yielding assets, In turn buoying the Rand and i mpacting negatively on the funds' offshore holdings (2% performance i mpact during the month).

While markets have rallied sharply from the initial Brexit sell-off, we believe the longer term impact for certain UK-focussed companies could be profound should the UK Indeed exit the EU. Our response at a portfolio level has been to cut our exposure to Capital S Counties (London development property exposure), Brait and Investec. In the case of Brait, around 55% of NAV comprises UK retail exposure via New Look and Iceland Foods - while we remain positive on management's ability to create value, we expect trading conditions for New Look to soften in coming quarters and the valuation looks vulnerable at a premium to listed peer group-implied NAV. We believe Investec's UK Specialist Bank's returns will come under pressure due to lower activity levels in the UK.

March brings to a close a quarter which saw many of the factors driving outperformance in recent years reversing, leading to sharp outperformance of Rand plays (stocks benefiting from Rand strength) and Resources (which behave as Rand plays) over industrial Rand hedges.

Our portfolio positioning has favoured quality industrial and non-bank financials, leading to a 3% decline in fund NAV over the past quarter against mid-single digit gains for the market as a whole. Specifically, we believe much of this rotation has been a factor of dollar weakness in Q1- in turn a result of reduced expectations of interest rate hikes in America.

While we have "dipped our toes in the water" in opportunistically adding some Resources exposure, we do not have conviction in a fresh commodity bull market being sustained in the absence of dollar weakness persisting. Conversely, industrial Rand hedges in general appear fully valued and we may look to selectively reduce exposure here in coming months (from an overweight position ex-Naspers).

Banks have performed well over the quarter, and at a 10x prospective P/E we believe the re-rating has largely run its course in the context of higher than average cost of equity and a deteriorating ROE profile domestically. In summary, we believe now is not the time to be increasing relative sector/factor bets - stock picking is likely to prove more important than ever as the year progresses.