Equity markets, as expected, continued to rise in June with the MSCI World index rising 0.9% in US Dollar terms and 0.6% for the quarter. The US Dollar rose 2.0% against the Euro, 1.7% against Sterling and by 2.7% against the Yen. Consequently, the Benchmark index was almost flat in the month while the average fund in the sector fell 1%, but the fund gained 1.2%. This significantly reduced the performance disparity between US and other markets in US Dollar terms, although the UK stood out with a 1.7% gain in US Dollars. For the quarter, the S&P 500 produced a positive return of 1.4% in US Dollars, while emerging markets rose over 6% but UK, Europe and Japan produced negative returns of 0.4%, 0.5% and 3.8% respectively.

The Benchmark index rose 0.2% in the month and fell 0.2% in the quarter. While the average fund in the sector rose 0.3% in the month and fell 1.8% in the quarter, the fund gained 0.9% and lost only 0.3% respectively. The global equity sub portfolio rose 1.3% in June, while the global bond portfolio lost 1.1%. The good relative performance of the equity fund more than compensated for the dull performance of the bond fund in the month, but asset allocation and our high US Dollar exposure again made a significant contribution. The benchmark has been altered to 60% equities, 40% bonds from 50% in each, but the fund remains overweight equities.

Growth in 1 st quarter GDP for the US was revised up to 3.8% annualised, the eighth consecutive quarter above 3%. As a result, the Fed raised rates again to 3.25%, and further increases are expected. In the UK, a pronounced slowdown is apparent (first quarter growth of 1.6% annualised) while growth in Europe and Japan has also been sluggish. The "modest deceleration in global economic growth" is increasingly hard to identify. UK and European rates were unchanged, but a cut in the UK is now widely expected, and a 0.5% cut to 1.5% in Sweden may precede a European cut.

The oil price touched $60 a barrel, before retreating a little. The US economy is clearly growing above capacity, but core inflation remains subdued.

Bond yields appear detached from both the global economy and commodity prices: the deflationary impact on demand from energy prices appears more powerful than the inflationary pressure on costs. Bonds continue to be poor value, but the global excess of savings and rising US Dollar may keep yields low.

Rising earnings and firm bond markets mean that equities continue to look undervalued, and so we continue to be firmly bullish. Markets are likely to continue upwards over the Summer, although the strong Dollar may continue to hold the US market back. Our equity exposure remains high and, although minor setbacks are possible, we are confident of further market gains in the remainder of the year.

Equity markets were weak in April, against the usual seasonal pattern, with the MSCI World index falling 2.1% in US Dollar terms. In local currencies, the S&P 500 fell 1.9%, Europe excluding the UK fell 2.6%, the UK fell 2.3% and Japan fell 4.4%. Emerging markets fell a little more than developed markets and smaller companies continued to under-perform.

10 year government bond yields fell to 4.2% in the US, to 3.5% in Europe, to 1.25% in Japan and to 4.5% in the UK. As a result, the Citigroup Global Bond index produced a positive return of 1.5%. The US Dollar rose 0.7% against the Euro, but fell 1.1% against Sterling and by 1.9% against the Yen. Consequently, the Benchmark index fell 0.3% in the month while the average fund in the sector fell 1%.

The global equity sub portfolio fell a disappointing 4.4% in April, while the global bond portfolio rose 1.1%. The combination of poor relative performance by equities, the poor performance of the equity fund and the relatively high holding in equities produced a negative return of 2.3%. We are hopeful that April's performance will prove to have been erratic, with the performance of the Global equity portfolio bouncing back in May/June.

Economic data reinforces the evidence of a modest deceleration in economic growth, but this has been anticipated in all forecasts. Commodity prices have stabilised, and although some of the inflation data was poor, markets assume that this will be temporary. We had seen limited downside in the Bond market, and so were not surprised by the market rally. Bonds are poor value, but they will not revert to fair value while economic data is weak and there is a global excess of savings.

The combination of weak markets, rising earnings and firm Bond markets has improved the attractiveness of equities further, and increased our equity conviction. We do not think that markets will necessarily wait until Autumn before rallying, despite a prevailing mood of pessimism and nervousness among investors. We have been raising our equity exposure in anticipation of a renewal of the up-trend. We are confident that, whatever the short-term monthly movements, our strategic bias towards equities will be rewarded in the remainder of the year.

Equity markets gave back the February recovery with the MSCI World index falling 1.9% in March in US Dollar terms, ending the quarter down 1%. This was largely the result of a US Dollar rally: the index was flat in Sterling and marginally higher in Euros. The S&P 500 fell 1.8%, Europe excluding the UK fell 2.4%, the UK fell 2.7% and Japan 1.5%. Smaller companies underperformed in most markets and emerging markets were particularly weak. 10 year government bond yields rose to 4.5% in the US but were flat in other markets. With the US Dollar rallying, the Citigroup Global Bond index produced a negative return of 1.3%. The US Dollar rose 1.9% against Sterling, by 2.1% against the Euro and by 2.5% against the Yen. Consequently, the Benchmark index fell 1.4% in the month.

Our increased equity added value to the Investec Global Balanced Feeder Fund in the quarter, but not in the month. However, our investments in external funds and currency exposure helped and so the fund fell an overall 2.2% in the month, closer to the benchmark and ahead of the sector average. Over the quarter, the 0.5% loss was well ahead of both the benchmark and the sector average.

Economic data shows a modest deceleration in economic growth in 2005 but upgraded estimates for 2004. Rising commodity and related prices has raised inflation modestly, but core inflation remains low.

Bonds continue to represent poor value, but the downside looks limited following recent weakness. The maturity of the bond portfolio remains short for the time being.

Rising earnings and the dull start to the year are improving the attractiveness of equities, and we remain positive on the outlook. The next few months are traditionally a dull time for markets, but we are not convinced that this year will follow the usual pattern.

Equities are good value in absolute terms, and very good value relative to bonds, while earnings growth continues to be strong. We have maintained our equity exposure a little, but are ready to raise it again at the appropriate time.

Global equities finished 2004 on a strong note rising by 3.8% on the month and 12.1% on the quarter as concerns about higher oil prices and US economic weakness abated. This boosted what had hitherto promised to be a lacklustre advance for 2004 as a whole to a respectable 15.2%, albeit in terms of a weaker US Dollar. Oil prices subsided having hit a peak of $55 per barrel and US employment growth appeared healthier than originally appeared to be the case. Movements in long term interest rates were overshadowed by developments in currency markets which were the principal drivers of the 8.5% return for the Citigroup World Government Bond Index. Having rallied modestly since its low point in February the US Dollar weakened sharply in the fourth quarter against other major and minor currencies. The Euro and the Yen strengthened by 9.4% and 7.6% respectively. The Rand was again strong, advancing by 14.9% in US Dollar terms in the final quarter and by 18.5% over the year as a whole.

The Investec Global Balanced Feeder Fund was well positioned during the quarter with a relatively full exposure to equities and a commensurately lower bond allocation. Within the bond sub portfolio bond duration was reduced given the strength of bond markets and profits were taken on short US Dollar positions.

There is little evidence of higher interest rates having much impact in the US or UK, or a strong currency doing more than marginally slowing the European and Japanese economies in 2005. Although we remain strategically US Dollar negative we have flagged the risk of sharp countertrend rallies and note that at the time of writing some 50% of its fall against the Euro has been retraced since the beginning of the year.