The Investec Worldwide fund is beating its peers and the MSCI World benchmark but, like all rand-denominated foreign funds, returns are deeply in the red on a one- and three-year basis because of the rand. The fund is put together on a stock-picking basis, rather than a geographic, macroeconomic or sector allocation. Nevertheless, the fund is much more heavily exposed to the US than the benchmark. Banks dominate the top 10.

If you lived anywhere else in the world you would probably be quite happy with the return generated by global equities so far this year. As it is, the rand strength has wiped out the positive return seen by equities both in the third quarter and year-to-date. These are the numbers. For Q3, global equities were up 4.9% in US dollar terms but the rand strengthened by 7.2% leaving the return to SA investors comfortably negative. Year-to-date, the numbers are equally stark. Global equities are up 17% in US dollar terms, the rand is up an even more impressive 22%.

The fund return has beaten the MSCI World Index by some 3% year- to-date, as it has for each of the last three years, but that is still not enough to match the returns generated by either our SA equity or SA bond portfolios. Currencies are notoriously difficult to forecast so I don't try. Our policy in this fund is to get the maximum offshore exposure that we can for our clients. We won't voluntarily hold rand assets. In this way, our fund will provide the best diversification possible to a portfolio of onshore assets.

Where is the rand going? Well, for the next six months I haven't a clue, but I wouldn't bet against the geopolitical risks associated withthe region driving the value of the currency lower in the longer term. If so, then you will want to retain a meaningful portion of your assets offshore. I may be in danger of repeating myself; I've certainly said this once this year, but there are very few golden rules in investment. One is as follows: Diversify.

Investec launched a new B class (retail) on this fund on 1 October 2003.

It is often said that bull markets tend to "climb a wall of worry", and that certainly is the case with the recent rally. Many market commentators are pointing out that new bull markets only start when valuations reach historically low levels. They are concerned that valuations at present look really still quite expensive. Others are concerned that the recent market rally is being led by the old favourites from the last boom (technology shares) and that this is another unhealthy sign. We would not disagree that there is a good deal to worry about regarding the state of world equity markets. The best indicator of the health of any market, however, is the price, and prices are rising.

As ever, we remain fully invested in global equities and are therefore fully exposed to the rally. We have also changed the shape of the portfolio of late to reflect the fact that the market is now willing to reward higher risk shares. We have added two or three mid-sized US technology companies in UT Starcom, Western Digital and Cypress Semiconductor, and we have also taken a position in two biotechnology shares, Gilead Life Sciences and Invitrogen. Each of these companies have been attractively valued for some time, but it is only the recent improvement to their profit outlook and the subsequent improvement to their share price performance that has convinced us to get involved. As a consequence of these recent transactions and others like them, the fund appears to be keeping up, if not slightly outstripping rising global equity indices.

Maybe this rally will turn out to be just another bear market bounce. It is too early to say. As always, we will react to evidence rather than speculation.

With economic and political news unambiguously bearish, world equity markets have been acting rather well in the last few weeks. Corporate profit forecasts continue to plunge, and overall market valuation levels still look far from cheap. So why do markets want to rally? The truth is we don't know, nobody does. At times like this, one can only get out the history books and look for similar periods in the past to gauge how investors might react this time. Looking back to big bear markets in the past such as '73-'74 in the US, '89-'92 in Japan or even '29-'32 in the US, we are struck by remarkable similarities. All of these big bear markets gave investors a truly dreadful three years followed by a substantial counter trend rally of between 40% and 60%.

Despite all the negative news flow that is out there, we feel that global equities having experienced a dreadful three years, and could enjoy a fairly savage bounce at some stage this year. Such a counter trend rally will almost certainly catch out most market participants. We may well be seeing the early signs of it now.

The equity market rally that had started in October fizzled out in December in the face of more weak economic data on the US economy. The US$ fell in value against most currencies as a result, and nowhere was this effect more marked than South Africa where the rand rallied to around R8.50 to the dollar. This closed out a dismal year for global equity investors with market levels falling 19% in US$ terms and a staggering 43% in rand terms. Our relative performance throughout the year has been strong as a result of our cautious stance. We recognise, however, that this will be cold comfort to the investor who has still seen the value of his assets fall by some 38% over the period, as compared to the broader equity market fall of 43%.

With regard to stock selection, we are finding that we are being presented with a wider range of potential investment opportunities than has been the case for three years. The technology sector is finally throwing up some good value opportunities and we have added to our exposure in this area through purchases of Lattice Semiconductor and ADC Telecom. These names replace more defensive positions in Philip Morris (tobacco) and Renal Care (healthcare) that have given us a strong couple of years of performance in relative terms, but are now showing signs of failing. Our current stance then is that while we are not geared up for a raging bull market as yet, the portfolio positioning is much closer to a neutral position than it has been for a couple of years.

listed worldwide. Besides providing investors with a rand hedge investment, the objective of the fund is to achieve long-term capital We would not be surprised to see equity markets bounce in the first six months of this year, and if this proves to be the case, we will continue with the drift toward higher risk names.