The commodity fund returned a negative 1.3% this month, outperforming its benchmark (the resources sector) which declined by 4.8%. Resource shares suffered, as concerns over the prospects for an economic recovery drove down base metals prices. Onerous metal inventory levels and the prospect of conflict in the Middle-East, further conspired to weaken metal prices. The rand strengthened during the month, from R10.55 to the dollar to below R10/$. The strengthening currency, along with rising wage inflation, lead to a contraction in mining companies' margins. The exception to this month's share price declines was the Platinum sector which rose by 2.5% on the back of a strong platinum price. The fund benefited being overweight in Platinum shares, particularly Impala Platinum. A further boost to the fund's performance came from its holding in the basic industries sector, which is less exposed to commodity prices. PPC and Omnia were strong performers this month, bucking the weak trend of the resource counters.

The Resources Sector declined by 6.5% this quarter, but outperformed the falling All Share Index by 3.6%.

Resource shares suffered during the past three months, as concerns over the prospects for an economic recovery drove down base metals prices. Onerous metal inventory levels and the prospect of conflict in the middle-east, further conspired to weaken metal prices. While base metals have been weak, the diversified miners have benefited from the support offered by a rising oil price, an improving gold price, a solid platinum price and, more recently, an improvement in the European coal price. On the negative side, sector performance was severely damaged during August this year by the leak of information relating to the South African government's opening bargaining position on its mining charter, which was indeed extreme, but is, in our view, unlikely to resemble the final settlement.

Anglo American reported its interim earnings during the quarter. Earnings per share were 8% higher than the corresponding period last year and up 1% over the preceding six months period. The latter is a noticeable highlight as both BHP Billiton and Rio Tinto reported a sharp decline in earnings over the same period. Anglo's earnings were buoyed by the afore-mentioned strong precious metals prices, as well as healthy diamond sales, while BHP Billiton suffered as a result of weaker base metals prices and translation losses on Rand debt. The sharp under performance of the Anglo share price against BHP Billiton in August highlighted Anglo's Achilles heel. Its high exposure to SA, and the consequences on its SA businesses to the Mining Charter, has resulted in non-SA shareholders divesting out of Anglo. Consequently, the share began trading significantly below its R155.00 mid-cycle price, based on our analysis. Even if we increased hurdle rates to take into account higher South African risks, the share is still trading at a discount. Its 2002E PE is just 9.9x and the yield is now 4.3%. Earnings are showing impressive resilience and management has provided some comfort on black empowerment. We were thus buyers of Anglo during the quarter and continue to prefer it to BHP Billiton, for mining house exposure.

In the platinum sector, we still favour Impala Platinum, at the expense of Angloplats. Angloplats trades at a 40% higher p/e multiple than Implats, and we feel such a premium is excessive, given Implats's earnings growth profile, higher dividend yield, corporate action potential and pending increase in liquidity and index weighting once Gencor unbundles its stake.

August saw the Investec Commodity Fund delivering a very satisfying performance, with a return of nearly 12%. This reversed the losses incurred during July, despite the continued underperformance of Anglo American.

The fund's exposure to Impala, Harmony and Sasol - all of which performed very well during the quarter - contributed a lot to performance. These shares are still not expensive, are still pricing in their underlying commodities at levels well below spot and combined with the (oversold) holding in Anglo American and a weak currency, should continue to deliver performance in the months to come.

The Resources Sector declined by -5% this month, underperforming the market by -6%. The Commodity Fund outperformed this benchmark by returning negative -1.4% for the month. The fall in Resource share prices occurred as the rally in base metals prices appeared to falter. The sharp gains in these prices since their lows in November 2001 was fuelled more by speculative interest and short-covering than by genuine consumer interest for end-use demands. The absence of such consumers in the metal markets resulted in flat to lower prices amid rising LME stock levels for the month. Against this background, investors chose to take profits in the mining shares, with the diversified mining houses being particularly hard hit (down 10.7%). The fund benefited by being underweight these shares, in particular Anglos and Billiton. The share price capitulation was exacerbated by a strengthening Rand, which failed to come to the aid of these companies’ margins. The precious metals, however, proved immune to the month’s declines. Both the gold and platinum prices rose during the month on strong consumer demand (for both jewellery and investment) spurring the respective share prices higher. The fund’s large positions in Harmony and Implats thus proved to be good positioning for the month. The fund manager believes there is still upside potential in commodity share prices to move closer to peak cycle valuations. The fund manager hence feel that the next 12 months could still be very good for resource companies.

The Investec Commodity Fund (class R) was the second best performer over a five year period ending 31 March 2002 with a return of 36.9%.

The Investec Commodity Fund (R class) has won the S&P 2002 awards for the best fund within the Domestic Equity Mining and Resources sector over a one as well as five year period. The fund was also crowned as the top fund within the industry.