Over the quarter, the fund continued to face global pessimism, talk of war and falling major financial markets, as well as the effects of the leaked draft of the Minerals Charter. Against this backdrop, the prospect of achieving real returns from investments was extremely daunting.

"It is the economy, stupid!" Mr. Clinton used to say. What might be appropriate to the career outlook of an American politician is only to a limited degree correct for the fortunes of equity markets. It is the valuations of equities and their earnings that make the wheels go round. Interestingly, while the majority of major financial market companies are producing extremely poor earnings, there are still many attractive opportunities on the JSE. Albeit, several of the ALSI 40 companies are dual listed or have significant offshore shareholding, and thereby offer less shelter than many "SA only" owned stocks.

With specific regard to gold, there are some good macro-economic reasons for the precious metal to rise: the dollar seems overvalued and is likely to head lower; monetary reflation is becoming more plausible, and real interest rates will remain low for some time to come.

Thus, the fund managers are faced with interesting and challenging times.

"The most frustrating aspect of being a portfolio manager these days is the lack of long-term themes. An investor wants to identify important industrial change, make a substantial commitment to a group of stocks benefiting from it, and lean back to watch it develop."
Byron Wien, Morgan Stanley
This comment, made earlier in the year, accurately describes the state of global and local equity markets as well as the view of many investors over the past quarter.
The SA market was, to some degree, resilient to the impact of a depreciating US dollar, the uncertainty surrounding the magnitude and sustainability of the global economic recovery, and the ongoing accounting scandals in the US. While mid and small cap stocks offered some shelter to the local investor, large caps (especially the double listed counters) did not escape the negative impact of global equities. The ALSI 40 offered few opportunities over the period.
The lack of a major global investment theme, coupled with rising skepticism and nervousness around equity markets, triggered enormous volatility in some sectors (eg precious metals) creating a very challenging environment for the fund. Volatility and setbacks are loyal companions to what a cynic would describe as a 'state of confusion'. However, it is also in periods such as this that new investment themes are born and the soil for future returns is prepared.
The fund's exposure to the financial and steel sectors contributed positively over the period, and while property proved to be a safe haven, platinum group metals (PGM's) did not. Over the period, investing in gold stocks was not for the faint hearted, but while this sector is likely to remain volatile, it could still offer surprises on the upside during the forthcoming months.

The composition of the portfolio in the first quarter of this year has to be seen in the context of various global and domestic challenges that will not disappear overnight.
Internationally, the Enron scandal has raised a heated debate on questions regarding corporate ethics and the risk of further potential corporate failures. Accounting practices used over the last couple of years have left a lot of investors disillusioned and cynical. Valuations of many global blue chips are still looking stretched. In the Far East, there is no sign of a continuous economic recovery and the Japanese find themselves confronted with a rotten and unstable financial system, unsecured savings, an overvalued equity market and potential yen devaluation. Nonetheless, there is evidence of a global economic recovery.
Domestically, over the last quarter, some sectors and companies benefited from the points listed above - directly or indirectly - while others faced the challenge of a lacklustre domestic growth outlook, higher than expected inflation and increasing interest rates.
Against this backdrop, the Coronation Top 20 Fund yielded 14.87% to investors, outperforming its benchmark by 6.94%. Main contributors to the fund's outperformance were its overweight position in gold (the star performer of the market) and its exposure to oil, paper, steel, diversified industrials and property. The underlying stocks within all these sectors - such as Iscor, Goldfields, Kumba, Richemont and Liberty International - substantially outperformed their market peers.
As the fund go into the second quarter of 2002, the fund manager will continue to identify investment opportunities that will provide returns for investors in excess of the expected market return.

The Coronation Top 20 Fund has won the S&P 2002 award for the best fund within the Domestic Equity Large Cap sector over a one year period.

Resulting from the September 2001 ballot the Coronation Top 20 Fund has increased its investment universe as from the 18 January 2002. The fund can now invest in the top 50 companies by market capitalisation, previously the fund was restricted to the top 40 companies on the JSE. The fund's investment mandate and style has not changed.

With effect from the 1 May 2002 the Coronation Top 20 Fund will change its benchmark from the JSE ALSI 40 index to a weight adjusted ALSI 40 index. The regulations that govern unit trusts prohibit any fund from holding more than 10% in any one counter while many shares in the ALSI 40 index make up a greater percentage than would be allowed under these regulations. It is felt that the index is therefore not an fair benchmark on which to judge the performance of the fund. As performance related fees are charged on the fund an accurate benchmark is necessary for accurate evaluation of the fund managers value added.

The Coronation Top 20 Fund was ranked number one in its category for the year ending 30 September 2001. The fund's strong performance has been attributed to focused stock selection and the implementation of strong views. The investment style and philosophy will be continued going forward.