One investor pointed out to the fund manager that the fund was the second highest returning fund in the worldwide asset allocation flexible category as reported by Micropal. The fund manager response was that as the fund was not fully exposed to the strong rand, this provided some benefit. His reply was that even if one adjusted for that fact, the fund would still be in the top ten funds. The fund manager feels it important to stress that the funds portfolio is not relative investors, however this little story does illustrate how well the Coronation Optimum Growth Fund has done over the last year in its aim of preserving capital for investors.

On a one year basis, the fund has delivered a return of 3.6%. Unfortunatley, this return did not exceed the funds target of inflation plus 3% but, in light of the above,it is understandable. Since inception, the point at which most of the funds investors entered the fund, it has returned 16.01% versus the benchmark return of 7.60%.

Now is certainly an interesting time to invest. A number of the world's currencies are volatile and global markets are relatively optimistic about future investment prospects. In South Africa there is a firm undertone to the market, and cash is finding its way into all asset classes.

While there are good reasons for the optimism, one does not want to be too contrarian and, in the short-term, the fund manager's are certainly going to be more price conscious.

From a geographical perspective, the fund continues to increase its exposure to the Far East and remains underexposed to the US. Within the local market, there are a number of shares which have not been key contributors to performance in the last six months. However, the fund manager's believe that these shares are significantly undervalued and will provide for satisfactory returns over the next 12-18 months.

At the time of writing the fund was up 10% for the quarter. This is against a background of a rand that has appreciated by 5% against the US dollar and an All Share index, which is up 9%. The All Bond index delivered 6.7% bringing the total returns for bonds to 12% for the year to date.

The fund manager often reflects on the means by which to measure how well the fund has performed. Do they measure the fund in dollars or do they use base currency? Or for that matter, should they use euros? For example, the fund manager's swapped US dollars for Canadian and Australian dollars. Do the fund manager's then translate the gains into rands or US dollars?

The dilemma for the fund is that the fund cannot repatriate dollars to South Africa and then reswap when the fund manager's believe the rand to be overdone. In summary, the fund manager's preserve the funds purchasing power and earn a reasonable return above inflation on a fund with a target return of CPIX + 3%.

When Coronation established the fund back in March 1999, there were investors who felt that a target return of CPIX + 3% was too generous on which to earn a performance fee. The last 18 months have been a lot tougher and, with hindsight, it has not been an unfair hurdle rate.

Some observers may have noticed that the fund manager's have not made full use of the funds flexible mandate by, for example, investing 100% in bonds. With 50% of the fund's assets offshore, it is only the local portion of the fund that is flexible. In this regard, the fund manager's have favoured equities over bonds and the fund manager's stock picking has outperformed local bonds. For the past 15 months, the fund manager's view was that bonds were overdone. The fund manager still believes nothing has changed; local equities are far more attractive.

The fund manager continues to favour the Far East as an investment destination, and are satisfied with the funds investment in the Comgest fund. Furthermore, Kokkie Kooyman, fund manager of the Coronation Financial fund, has invested in two Indian Banks which the fund manager's believe will be positive for the fund. And, being unable to watch from the sidelines, the fund manager's have also invested in a counter called Yamada Denki which he believes to be 'the best buy of Japan' - so far so good.

While in the US for the annual 'pilgrimage' to the Berkshire Hathaway meeting, I met with a fund manager in New York who manages a fund for Coronation called the Close Finsbury North American fund. The credentials of the manager and the track record of the fund are so impressive that we have now invested 1% in the fund. It is a focused fund with a deep value bias.

The fund manager cannot predict where the economy or the currency is heading. But what he does say is that South African shares are not expensive and will, over the next few years, provide good returns -while for the rest of the world it will be tough.

The fund recorded a very good result in 2002 - of the 77 unit trusts in the foreign and worldwide sectors, it was one of only two that managed to produce a positive return. Although the fund continued to perform well on a relative basis, it was therefore very disappointing to have been down by more than 8% in the first quarter of 2003.

This can be explained by the negative state of equity markets overall and the continued strengthening of the local currency. About half of the unrealised loss came from the stronger rand as approximately 50% of the portfolio remains invested offshore. The balance was a result of maintaining a high domestic equity weighting through the quarter. While the fund manager's have been comfortable with a buy and hold strategy, a more tactical approach may now be required to take advantage of the narrow trading bands.

The fund manager's continue to seek alternative investments, such as the investment in a US junk bond called Level Three, which was purchased at a yield of 22% and is now trading at 14%, a substantial capital appreciation.

Despite the surge in the rand in the final quarter of the year, the fund delivered a positive return for 2002. As 45% of the fund's portfolio is invested offshore, this is an acceptable return in the short term.

Over the quarter, a number of shares held in the portfolio were subject to takeout offers namely, HCI, HLH, Ozz , Caxton, and MiHL. Furthermore, Kagiso Media and Delta are currently under cautionary, and foreign shares, Safeway and Nordlandsbanken, are subject to take out offers.

In terms of prospects, the fund manager's are slightly more optimistic about returns from offshore equities in 2003. The stimulus packages and low interest rate environment are good news for those companies that have been cost cutting, refocusing their businesses and taking market share from companies that have been floundering. Furthermore, the irrational behaviour of the market is starting to produce attractive valuations for long- term investors.