Global equities made good progress over the third quarter of 2018, rising by 4% in US$ terms. US equities once again led the way. The S&P500 Index rose by 8% in US$ terms bringing the gain over 2018 to date to 9%. These excellent returns, driven by good second quarter corporate earnings and the ongoing impact of last year's tax cuts, were overshadowed by performance elsewhere in the world. In local currency terms, UK equities fell by 1.8% over the quarter whilst European equities lost 0.1%. Emerging markets were especially weak. The latest arguments over US trade tariffs, this time with Turkey, spilt over into currency markets and focussed attention on the financial arrangements of several fragile economies. This included South Africa, whose position was not helped when the economy recently fell into its first recession since 2009.

Unsurprisingly, the shares of SA Inc. businesses came under pressure as investors priced in a deteriorating backdrop for emerging markets in general, as well as significant economic challenges that are more specific to the South African economy. These challenges include high government debt to GDP, weak SOE balance sheets, low business confidence, high unemployment and massive social inequality. This difficult environment is evidenced by the recent financial results of many of SA's finest businesses which have struggled to grow dividends in 2018.

In our recent half year report to investors we highlighted how we had taken into consideration: 1) South Africa's vulnerable economic position, 2) tighter monetary policy in the first world; and, 3) the more attractive valuations of the world's best dividend payers when positioning our portfolios. As such, notwithstanding the recent "Ramaphoria" we maintained an 80% exposure to offshore equities within the Worldwide Fund. This positioning served investors particularly well this quarter, and will likely continue serving investors well in the years ahead as we do not expect current trends to change anytime soon.