The fund performance fell just short of a rampant benchmark in the third quarter. The Rand performance was once again less attractive as our local currency strength resulted in the region of a 10% pull-back against the US Dollar performance. The negative second quarter was scattered with macro turbulence and speculation around a double dip recession grew stronger; however this talk was soon put aside as cash flows chased our sector up into July. Global stability did help, however the more decisive factors behind the property market resurgence were a combination of the positive yield carry to major bond indices (as all major long bond yields dipped below 3%) resulting in a search for yield and the fact that many investors viewed the equity markets as 'direction less' from which the marginal dollar invested often bypassed equity and found a home in real estate.

Our persistent overweight Asia helped as the attractive valuations continue to unwind into a recovering rental market. The underweight US also added to our relative return as it lagged the index by 4%, this was further enhanced through strong stock selection into some of the Canadian counters and the top pick for the quarter being Corrections Corp. a company owning prisons and correctional facilities. The underweight Europe pulled the numbers back as the continent and more specifically the UK came back strongly from a disastrous second quarter, and while certain picks such as Unibail-Rodamco did well for us, our underweight in the other majors hurt. The biggest detractor for the period actually came through a cash drag as we held approximately 2.5% in dollar cash.

Looking Ahead
Post the end of the third quarter we have seen a continuation of the strong demand and thus performance of the sector, which brings us to a 23% dollar return in just less than four months! Prices can be justified at these levels considering the tight yields and the fact that they are likely to remain at these levels for some time as global growth remains subdued. This doesn't however avoid the fact that many of the valuations are starting to look a little stretched, there are opportunities, but they are harder to come by. Hong Kong office rentals are starting to turn, as are West End property prices in the UK; stocks such as British Land continues to offer value with an improving portfolio and we believe certain of the industrial US property stocks are likely to outperform as they tend to lag the general property market. My concern would be that in certain areas, the US being the key node, that strong economic growth will result in higher bond yields and thus.

The STANLIB International Property Fund will change it's name to STANLIB Global Property Feeder Fund, effective from 30 June 2010

Fund Review
The Fund had another good quarter, gaining 4.5% in dollar terms (2.9% in Rand terms), aided by the appreciation in the Global Property Index during December (+ 5.7%). The Fund outperformed the index by 0.83% during the last quarter of 2009.The Fund appreciated by 37.5% in US Dollar terms (7.9% in Rand terms) in 2009 as a whole. This 2009 return appears to be better than most of the global listed property indices. During the quarter, the overweight positions in both the US and Hong Kong contributed the most to the outperformance relative to the benchmark. The best performing holding by country in the portfolio was Norway (+38.5% during the fourth quarter), despite being only 0.3% of the total portfolio. Singapore returned 14.9% (3.7% of the portfolio), while the worst performing country was Austria with -17.7%. Austria makes up 0.15% of the Fund. Both Japan (-5.4%) and Australia (-4.5%) also had negative returns during the quarter. Japan makes up 10% of the fund, while Australia makes up 9.6% of the fund. Residential Property Holdings provided the best performance compared to other sectors in the economy. We are overweight residential developers compared to the benchmark (21 % vs 17.6%), which returned 9.6% for the quarter. During the quarter, Industrial property returned 8.7%, followed by Hotels with 5.7%, Retail with 3.8% and Offices with 3.2%. Rental agreements declined in value during 2009. For example, Manhattan office rental agreements fell to the lowest level in three years; while in Paris they declined by 15%. Currently London city offices are yielding 6%, while Paris and Madrid offices yield 5.5% and 6.3% respectively.

Looking Forward
One of Fidelity's top equity portfolio managers is overweight in property shares because of the high relative yields, compared to cash. Many property shares continue to trade at 2005 levels, or lower, so opportunities remain for astute stock pickers. Even though property prices recovered significantly in 2009, there is still room for capital appreciation. Economies continue to improve with job losses diminishing sharply. It is possible to see job creation returning within 3 to 6 months, which would further improve property fundamentals.