The Rainmaker Equity Fund out-performed the All Share Index during the month of September, for the quarter as a whole and for the year to September 2002. Micropal statistics indicates that out of the 56 funds in the General Equity sector, Rainmaker ranks 4th over three months, 6th over six months and 3rd over 12 months [Financial Mail, October 11, 2002]. The 12-month return assuming income re-invested was 30.85%.

The unit price has remained relatively steady around the 1500 cent per unit level for the past nine months, which we consider satisfactory given the collapse of world markets and the strengthening of the rand over the same period. This in turn reflects a defensive investment approach favouring relatively high weightings in precious metals, tobacco, food, packaging, oil and relatively inexpensive emerging small caps (Uniserve, Palamin, City Lodge, Ozz, Mustek, Softline, Aplitech and Oceana).

During the past quarter, the profile of the fund has changed somewhat. We reduced exposure to certain consumer stocks which had performed well for the fund (Nampak, Massmart, Foschini and Woolworths) and increased exposure to capital investment and mining supply companies (Murray & Roberts, Group 5, Remgro, Barlows, Altron prefs and AECI). Holdings in Palamin, City Lodge, Illovo, Tongaat and Trencor were augmented, but offshore investments in Property Trusts were sold to finance a significant investment in MIHL (US listed).

The fund is fully invested. We think a strong bear market rally in world equity markets is likely during the last quarter but remain defensively positioned with a focus on good cash generating businesses. The US dollar appears vulnerable given the US's large current account deficit. While the 7% investment in Trencor/Mobile gives the fund significant US dollar exposure at a large discount, dollar weakness should benefit the fund's commodity shares as well as those companies whose input costs are dollar denominated, e.g. MIHL.

The African Harvest Rainmaker is managed by one of SA's most accomplished stock pickers, Tim Allsop. And it shows in the fund's superior returns and, by sector norms, maverick portfolio. Allsop says 67% of the portfolio comprises SA companies with over 50% of profits benefiting from rand weakness. Predominantly smaller-cap shares, their below average p:es also provide a defensive profile during market weakness. Including offshore cash, the fund's total rand hedge component is 72%.

The Rainmaker Equity fund outperformed the All Share Index in June 2002 and for the quarter as whole. Within the General Equity sector, which comprises 59 different funds, the Rainmaker Equity Fund was positioned 11th for the month and 10th for the quarter. [Source: MoneyMate]

The unit price has remained relatively steady around the 1500 cents level for the past six months which we consider quite satisfactory given the collapse of world markets and the strengthening of the rand over the same period. This in turn reflects a defensive investment approach favouring a relatively high weighting in precious metals, tabacco, food, packaging and "low PE", "small cap" shares.

Looking forward, we remain cautious regarding world markets and have used the recent downward correction in the prices of Gold shares to increase our exposure to this category. In addition, we have broadened the base of the fund by lightening overweight and outperforming positions in Remgor, Venfin, AECI and Nampack and by introducing new holdings Woolworths, Foschini, FirstRand and Barlows.

The fund continues to have a high exposure to "emerging global winners" and other domestic small-cap counters. Several of these companies will shortly be announcing results for the six months to June. In particular, we look forward to the results of Trencor, Tiger Wheel, Mustek, MGX, Grintek, Delta, Group 5, Woolworths, AG industries, Steinhoff, Tongaat, Santam, FirstRand and Gencor.

The fund continued to underperform the All Share Index during March which meant that not-withstanding the strong start in January, the quarter as a whole was a relatively poor one.

The reasons for this are basically twofold:

Firstly, the fund is broadly focused on SA-listed companies which are globally based (and strengthening of the rand led to consolidation in the share prices of these companies);
Secondly, a large proportion of these "global winners" are "small cap" companies - a sector which has been underperforming the ALSI 40 since September 2001, but now appears to have turned the corner with corporate action taking advantage of almost unprecedently low ratings.

The fund manager remains highly sceptical regarding the prospects for world equity markets and in recent weeks we notice the NASDAQ breaking down to new two-year lows. The fund's direct offshore capital has accordingly been defensively deployed with investments in high-income-yielding property trusts and packaging stocks performing particularly well. While the high ratings of overseas equity markets appear to have fully discounted an uncertain recovery in world markets, local equities appear relatively attractive. Consequently, most of the fund's mandatory cash holdings are held offshore. In addition, we have used offshore funds to buy Anglogold ADR's with the disposal of Goldfields SA during the quarter.

During the past month the fund experienced fairly significant outflows. These were funded by the trimming of holdings in Illovo, Tongaat, Sappi, Sasol and Angloplats - effectively lightening the fund's exposure to outperforming resource stocks while maintaining a high rand-hedge weighting through increased exposure to Industrial rand hedges (AECI, Ozz, Remgro, Venfin, Oceana, Softline and Malbak).

From a global perspective the fund is defensively positioned with overweight holdings in precious metals, tobacco, packaging and low PE locally-listed small cap rand hedges. The average price earnings multiple of the fund is below 10 (versus 12.5 for the All Share Index and 28 for the Dow Jones Industrial Index). Shares with more than 50% of profits derived from exports or international trading represent 67% of the value of the fund, with offshore cash holdings taking the total rand-hedge component to 72%.

The African Harvest Rainmaker Equity Fund has won the S&P 2002 award for the best fund within the Domestic Equity General sector over a one year period.

Since July 2000, the African Harvest Rainmaker Fund performed above average in periods of market strength and declined less than the average during periods of market weakness. This could be attributed to the stock-picking abilities of the fund manager, who has currently selected a portfolio consisting of predominantly mid-cap defensive and undervalued growth shares.