Once again the Investec Emerging Companies Fund grew handsomely, increasing by 8.4% over the month. The fund beat its benchmark, outperforming the market weighted mid & small cap index by 1%. Amazingly, the fund unfortunately did not do as well as its peers.

As I mentioned last month, the fund is conservatively positioned with your fund invested in low risk investments that have a good probability of giving a high long-term return. While these are good long-term investments, they do not help one outperform one's peers when they are generating such high monthly returns. I continue to believe 8% per month is a very good performance and continue to believe that the current strategy will help you, the unit holder, realise superior long-term returns.

The fund's current valuation metrics are shown below:
o Weighted PE (Price to earnings) is approx. 9.0
o Weighted DY (Dividend yield) is approx. 3.8%
o Weighted PB (Price to book) is approx. 2.5
o Weighted ROE (Return on equity) is approx. 23.8%
o Weighted RP (Implied risk premium) is approx. 6.4%
o Weighted +12 (Expected earnings growth over the next 12 months) is approx. 17.9%.

As you can see, the fund's valuation metrics have weakened slightly over the month. This is to be expected given the fund's performance. They are however still good and I therefore continue to be positive with regard to the fund's prospects.

nvestec Emerging Companies (IEC) has a history of returns in line with the sector average. This is evident over 12 months, for instance, and in its 62,8% capital appreciation over five years compared with the sector's 62,6% average. IEC has a distinct value slant, with a weighted 9 p:e, 3,8% dividend yield and forecast EPS growth of 17,9% over 12 months. A solid base, but spread over 50 stocks it's unlikely to put IEC way ahead of its peers.

Financial Times - 3 December 2004

This month brings to an end the first half of 2004. Over this six month period your funds have shown good growth in both relative and absolute terms. The total return for the Investec Emerging Companies Fund over the last six months was 10.4%. This return outperformed both the benchmark (up 1.9%) and the peers, with the fund being ranked in the first quartile over the period. This is a good result and every endeavour shall be taken to replicate it into the future.

Your fund continues to be managed in a conservative manner, with no holding being speculative in nature. By this I mean that every holding in the fund is well understood, has good honest management and currently trades at an attractive valuation. This is best represented by the fund's weighted average metrics.

The fund's weighted average metrics are as follows:
· The fund's weighted average P/E is approximately 8.
· The fund's weighted average 'dividend yield' is more than 4%.
· The fund's weighted average P/B is less than 2.2.
· The fund's weighted average 'return on equity' is more than 22%.
· The fund's weighted average 'expected earnings growth over the next twelve months' is more than 15%.

I am therefore still happy with the fund's prospects and continue to believe that good stock picking in the mid and small caps will deliver above average returns.

The month of May saw the unit value of the Investec Emerging Companies Fund decrease by 3.3%. This decrease bought to an end a 12 month run, during which time the fund continually increased its unit value month on month. Nothing goes up forever in one continuous movement. This decrease, given the fund's valuation and fundamentals, should therefore be seen as a natural correction whereby the fund's holdings were allowed to form a new base from which to grow.

The fund weighted valuation metrics are currently as follows:

Weighted price/earnings [PE] = less than 8.5%
Weighted dividend yield [DY] = greater than 4%
Weighted price/book [PB] = less than 2.1%
Weighted return on equity [ROE] = greater than 22%
Weighted 12 month projected growth = greater than 15%

One can thus see that the fund is now offering compelling value, given the quality of its holdings and positive prospects. We are confident that given the fund's fundamentals and valuation, the fund will continue to withstand any market negativity in a robust manner.

Last month we mentioned for the first time that the potential for Rand weakness had risen and that the fund had therefore started to up-weight its Rand sensitive mid/small cap holdings. Since then the market's perception with regard to China and global growth has gone from irrationally bullish to decidedly bearish. This has caused commodity prices to fall and the potential for an increase in US interest rates to rise. We feel that both of these factors are negative for the Rand and therefore feel twice as convinced that good quality, high dividend yield companies with hard currency revenue streams should be bought by the fund.

It should also be mentioned that although the fund's performance continues to be robust, with the fund being up 2.12% for the month of April, we are becoming much more cautious and worry that world markets are on the brink of experiencing some short term weakness. We are, however, also confident that in this environment, your fund (whose stocks generally trade on high dividend yields and market values below their intrinsic values), should hold up well.

As a guideline, Investec Emerging Companies Fund's focus is on companies with market caps of R1bn-R2bn, according to the fund's marketing blurb. In reality only two of the fund's top 10 shares have market caps in that range and the remaining eight average about R5bn. While these may not quite be in the top 40 share category, this may detract from the fund's appeal to purists seeking a fund with a more definitive smaller-cap slant

The month of December brought to a close what most would consider a good year for the fund's unit holders. December's 6.7% monthly return helped the fund achieve an annual return of 36.8% for the calendar year 2003. These good returns were greatly helped by the run in mid and small caps, with mid caps achieving an annual return of 28.4% and small caps achieving an annual return of 42.36% versus a large cap return of 12.0% per annum. The primary contributors to the fund's performance were Edcon (up 150%), Gold Reef (up 119%) and Netcare (up 63%). During the year, the fund's holdings in Wetherlys, NAIL and Avis were taken out at a premium to their market price. This trend continued into December with Naspers making an offer to the MNET minorities, offering to buy the fund's stock for 850c.

The fund continues to be weighted towards the local industrials, with a particular bias towards retailers. These stocks offer high returns, good cash generation and impressive prospective growth. The market still values these stocks at a discount to the market. We believe this to be incorrect and that the market price does not accurately reflect the local smaller SA companies' good fundamentals. We thus continue to be positive towards mid and small caps, and look forward to a prosperous 2004.