After a torrid September, equity markets recovered strongly in October. The US market led others higher. The S&P Index rose by 8.8% in Dollar terms over the month, and the NASDAQ Index gained 13.5% as IT and Telecommunications stocks posted the most significant gains. Having declined more in the sell off, Continental European markets ultimately posted the greatest advances of the major developed markets. The Nikkei bucked the general trend and fell by 8.5% in Dollar terms. Overall, the MSCI World Index advanced by 7.4% in Dollar terms and by a more modest 2.1% measured in a stronger rand. As the result of its defensive posture, the fund lagged its benchmark over the month having outperformed by a significant margin in prior periods. This far, the equity market rally has been largely technical, as investors have retreated from the abyss. The weakness in 2002 has largely been a function of a rise in equity risk premia. Corporate earnings have steadily improved as the benefits of greater labour productivity have flown through to bottom lines. Top line improvement has been largely absent primarily due to the reduction of inventories to very low levels.

World equity markets suffered further sharp reverses in September, and the MSCI World Index fell by 11% in Dollar terms and by 10.8% in Rand terms. European Markets were particularly hard hit with the European market falling by 25.4% to record one of its worst ever months.

The fund's defensive posture did not prevent losses in an absolute sense, but resulted in an outperformance of its benchmark of over 6 percentage points.

Equity market conditions are likely to remain volatile and investor confidence brittle, but the balance of probability suggests that a period of stabilisation is likely to ensue as volatility reduces from the current high levels.

At the underlying level, we are confident that our managers hold the shares of quality business with robust franchises that have proved relatively resilient and are likely to be early beneficiaries of any improvement in market sentiment.

Equity markets continued to rebound from heavily oversold levels that characterised the end of July before fading again towards the end of the month to record little net change. The Standard and Poor's 500 Index advanced by 0.7%, a performance, which was matched by continental European markets. Led by the Nikkei, far eastern markets weakened modestly. The MSCI World Index closed the month fractionally ahead with a gain of 0.2% measured in US Dollar terms. Underlying manager performance remains satisfactory to excellent. The Merrill Lynch 'core' sub portfolio is comfortably ahead of the MSCI World Index on a year to date basis, reflecting solid stock selection and a focus on stocks with quality franchises. Morgan Stanley's value portfolio rebounded strongly in August as July's indiscriminate selling of the types of quality value stocks that are held in that portfolio was unwound. Finally, Marvin and Palmer continue to struggle alongside other growth managers. Our policy has been to persist with a value bias and limit exposure to the growth stocks. However, we note that the extent of value stock out performance has been extraordinary and that the relative performance of 'value' and 'growth' stocks has recently started to become more mixed.

The fortunes of bond and equity markets are more heavily interlinked that is typically the case; equity weakness appears to be almost perfectly correlated with bond market strength. Comparative valuations have shifted to the point at which equities are definitively cheap relative to bonds in most of the major developed markets. The fear factor remains intense, although the focus has shifted away from corporate malfeasance to the heightened prospect of war with Iraq and the possibility of indications of a loss of economic momentum leading to a 'double dip'.

Market participants are understandably not in a mood to focus on positive factors but it is worth noting that second quarter earnings came through as expected with S&P constituents reporting 6% EPS growth on a year on year basis even though the US economy was much weaker over this period than expected. In the last analysis earnings will be the key to the ability of equity markets to stabilise and work higher. Actual monetary conditions have eased materially and there is a real prospect of further official interest rate reductions in the autumn and winter in both the United States and Europe if growth continues to disappoint. Given the intensity of the current bearish consensus, and that strong consensus's are almost invariably confounded, we feel that there is a materially greater probability of an albeit uneasy stabilisation and recovery of prices over the balance of the year than material new major market lows.

The MSCI World Equity index reached a high point for the year at the end of March. Thereafter equity markets have declined sharply with concerns about corporate accounting combined with those about the sustainability of the economic recovery. The MSCI World Index declined by 9% in Dollar terms and by 17.9% in Rand terms over the quarter to the end of June. The Rand strengthened by over 10% against a falling Dollar and fell by 2.7% against the Euro over this period. Equivalent declines in local currency terms occurred in continental Europe and the United States, whereas the UK market demonstrated defensive qualities on a relative basis. From a sector perspective, the global technology, telecommunications and healthcare sectors bore the brunt of the declines, whereas resource stocks and consumer staples held up disproportionately well. The Investec Global Multi Manager Fund was ranked fifth in the foreign equity category, suffering a decline of 12% in Rand terms compared with a sector average decline of 15.5% and the MSCI World index's decline of 17.9%. The fund was ranked second in its sector with a return of 19.9% over the twelve months to the end of June 2002, and was the leading 'long only' global equity fund in its category. Investor concerns about corporate governance, which were originally fuelled by the Enron collapse, were exacerbated further by revelations of wrongdoing at Worldcom and proved sufficient to undermine brittle investor sentiment. Consequently, key markets are in the process of testing their September 11 th low points and the result of this will determine whether a cyclical equity bear market become a secular one.

Valuations relative to bonds are now in fair value to cheap territory in the key equity markets, liquidity remains supportive and underlying economic conditions continue to improve, albeit at a moderate pace. Corporate profitability should also benefit from stricter cost controls and rising productivity. The fund has benefited form being defensively positioned and this stance will remain the case until clearer evidence of improving corporate profitability is forthcoming.

Equity markets continued to be volatile. Relapsing in April after a strong March. The MSCI World Index fell by 3.4% over the month in US Dollar terms, a decline that was amplified in Rand terms by the latter’s strength to 9.5%.

Despite abundant liquidity and evidence of economic recovery, equity markets have struggled to make progress. However, the fund manager continues to believe that cyclical conditions should ultimately prove supportive for equities, which should make progress as it becomes apparent that corporate profitability has the scope to improve on a sustained basis. Stylistically, the fund manager believes that a broadly neutral stance remains appropriate with no one style standing out as being evidently favoured at present.