The Investec Absolute Balanced Fund performed slightly ahead of our expectations for the month. Returns of close to 10% over the past year, exceeds the CPIX plus 4% performance margin by close to 2%. Once again, the returns were achieved at the lowest risk. Risk is similar to the inflation benchmark we use.

The basic structure of the fund is such that it is a "Sum of all Fears" fund. Imagine the worst volatility in financial markets, maybe stagflation (for those who were around in the '70s), a stock market crash or just very tricky and choppy markets. Under these circumstances, the fund performance has the potential to provide consistent real returns which would stand out in a crowd. In the mean time, we would expect solid performance in the future.

The Investec Absolute Balanced Fund achieved a cash return for the month, a result that we are not unhappy with given above average performances for the past 5 months. The 12 month return of 9.7% exceeds the hurdle return of 7.7% (CPIX plus 4%) by 2%. Similarly, the fund is performing better than cash with a similar risk profile. The average money market fund has returned 8.1% over the past 12 months.

The fund has not changed its profile, apart from allocating a little more money to our stock picking ability against the fixed income. This is purely because the current opportunity set is larger in the equity market.

The Investec Absolute Balanced Fund celebrated its first birthday on the 1 st of July, and this event was marked by a respectable performance of 9.5%, slightly ahead of the mandated target of CPIX plus 4%, net of fees. Whilst not hugely higher than the return on cash for the year, a large component of this return is post tax, given the dividends and equity synthetic cash earned.

We used the weakness in the Telkom price to add to our exposure in the month, and telecom and retail stocks now represent significant positive exposure in the fund.

We have persisted with a neutral exposure to Gold shares, reflecting our concern about the potential de-coupling of the Rand against the US Dollar Gold price, meaning that Gold shares will see rising revenue lines, which could become a reality if the ongoing shaft closures and loss making activities continue.

We have slightly increased our net exposure to equities taking the net exposure up to 8%, from 5% at the end of May.

Fixed income had a subdued month, but has performed strongly over the past year.

The total fund displayed an annualized daily volatility of 2.5%, with the largest draw-down being 0.9%. This reflects the extremely low risk nature of the fund.

The Investec Absolute Balanced Fund has delivered a return of 8.4% since inception on 1 July 2003. Performance for the month of May matched the return on cash (+0.64%).

The month of May delivered some extreme values, with the JSE All Share Index down 9% at one stage. Observing the daily performance of the fund sees no volatility in the unit price, with no meaningful negative movement (-0.1%) during the month. It is comforting to know that the money is protected in these environments.

The contribution from the protected equity and fixed income components was similar in magnitude for the month.

The fund maintains a neutral exposure to the trend in equity markets, and a negative exposure to the trend in the bond market.

April could end up representing something of a watershed event for world economics. The global cycle appears to have peaked, with many commodity prices also having seen their highs. The currency and global markets could be rolling over. These market conditions represent opportunity for investors in the Investec Absolute Balanced Fund.

The current beta of the fund has been further reduced to close to 0.01, with low net equity exposure. Similarly the fixed income shows a continued negative duration, implying a benefit from rising long term interest rates.

The Investec Absolute Balanced fund hasn't had enough time to build up a convincing track record because it was launched only in July last year. But performance was negative in January as a result of rand volatility. Fund manager Clyde Rossouw has adjusted the portfolio to be rand-neutral since then. The fund is up 6,4% since inception, well ahead of its benchmark of CPIX+4%. Though not in the relative return game, it has lagged behind counterparts with similar target returns.

The fund added another 92bp in December. The cumulative return since inception over the six-month period has been 7%. The figures compare to the documented performance objective of CPIX+4%. Cash returns have been 5% for the six-month period.

What the above figures suggest is that the portfolio selections within protected equity and fixed income have added good value.

Investors interested in the risks taken will be encouraged by the measured volatility of daily returns being 2.6% annualized, versus cash of 1.1% and equities of 15%. Actively managing risk is integral to the investment process.

We are getting close to a turning point in the trend of the Rand against the US Dollar, but we are confident that our Rand risk is covered through our stock selection.