Market review
The All Share Index (ALSI) closed 3.4% up over the quarter, losing some of its earlier gains as inflation fears gripped global markets. Substantial dispersion in performance across the sectors was evident as resources gained 13.4% over the quarter, while the Financial and Industrial Index lost 6.4%. General mining led resources higher, closing up 18.1% over the three months to the end of June. Banks and general retailers shed close to 15% over the quarter, while the defensive food retail and telecommunications sectors ended up 3.2% and 3.4%, respectively. The telecommunications sector was buoyed by corporate activity as MTN sought a potential merger with an Indian telecoms company.

Fund performance
The Investec Active Quants Fund enjoyed another excellent quarter, returning 4.1%, outperforming the SWIX benchmark (-0.2%). For the year to June the fund returned 13.8%, against the SWIX benchmark return of 3.4%. The Active Quants Fund has achieved first quartile performance over the 12 months, two and three years to the end of June (annualised returns).

Notable winners over the quarter were overweight positions in African Rainbow Minerals and ArcelorMittal, as well as an underweight position in FirstRand.

Portfolio activity
A perfectly optimal portfolio is a theoretical concept. Our expected returns change continuously as new information arrives and the market digests that information. A pragmatic approach is to maintain a near optimal portfolio by trading periodically. We rebalance the portfolio every three to five weeks depending on market volatility. Turnover at these rebalances is typically 10% -15%.

The most significant net buy side trades this quarter were Anglo American, Lonrho, AngloGold, Sasol and ApexHi-A. On the sell side we were most active in BHP Billiton, New Clicks Holdings, Sanlam, Dimension Data and ArcelorMittal. The result of these trades at the sector level is that we remain overweight resources and financials and underweight industrials. These sector bets are, however, less pronounced than in the past as we see opportunities more evenly spread through the market. It is important to note that we do not take explicit sector views; rather these positions are the result of bottom up stock specific positions.

Portfolio positioning
For a quantitative approach such as ours there are three dimensions of value add:

1. Find more factors. They must have predictive power and be relatively uncorrelated with existing factors. That is, they must contain new and useful information.

2. Combine existing factors more optimally to produce better composite expected returns.

3. Improve portfolio construction and implementation to maximise returns while controlling risk and costs.

We continue to focus our research efforts along these three dimensions. Looking forward, we are confident that our stock selection model will continue to differentiate prospective winners from losers and that our portfolio construction, risk management and implementation skills will ensure that the alpha opportunities identified are translated into meaningful returns for your portfolio.

Market review
Equity markets ended the first quarter sharply lower, driven by fears of a US recession, general risk aversion and a massive downward revision to earnings. The MSCI World Index declined by 8.9% over the quarter, outperforming the MSCI Emerging Markets Index, which closed down 10.9% (in US dollar terms).

On the local front, the FTSE/JSE All Share Index retraced the losses sustained towards the end of 2007, closing the first quarter up 2.9%. Resources were the clear winners, returning 17.6% as commodity prices reached new highs and earnings were aggressively revised upward. The domestically focused FTSE/JSE Financial and Industrial Index lost 8.5% over the quarter, depressed by tougher trading conditions and poor sentiment towards rate sensitive sectors. Banks, tainted by global credit market woes and local policy uncertainty, closed the quarter down 10.7%, while general retailers lost 14.3%. The construction and telecommunications sectors were less affected by the slowing domestic consumer environment, losing 7.6% and 4% respectively.

Fund performance
The Investec Active Quants Fund had an excellent quarter, returning 4.2%, well ahead of the SWIX benchmark (-0.3%). For the year to March the fund returned 12.4%, against the SWIX benchmark return of 6.3%. This month marks the three year anniversary of our unit trust fund. Over three years the fund is ranked second out of 45 general equity funds. The Active Quants Fund has achieved first quartile performance over the quarter, 12 months, two and three years to the end of March (annualised returns). Notable winners over the quarter were Arcelor Mittal, African Rainbow Minerals, Merafe Resources, BHP Billiton and AngloGold Ashanti.

Portfolio activity
A perfectly optimal portfolio is a theoretical concept. Our expected returns change continuously as new information arrives and the market digests that information. A pragmatic approach is to maintain a near optimal portfolio by trading periodically. We rebalance the portfolio every three to five weeks depending on market volatility. Turnover at these rebalances is typically 10% -15%. The most significant net buy side trades this quarter were Impala Platinum, MTN, Liberty, Exxaro and Sanlam. On the sell side we were most active in Anglo American, BHP Billiton, Anglo Platinum, Kumba Iron Ore and Arcelor Mittal. The result of these trades at the sector level is that we remain overweight in resources and financials and underweight in industrials. These sector bets are, however, less pronounced than in the past as we see opportunities more evenly spread through the market. It is important to note that we do not take explicit sector views; rather these positions are the result of bottomup stock specific positions.

Market outlook
For a quantitative approach such as ours there are three dimensions of value add:
1. Find more factors. They must have predictive power and be relatively uncorrelated with existing factors. That is, they must contain new and useful information.
2. Combine existing factors more optimally to produce better composite expected returns.
3. Improve portfolio construction and implementation to maximise returns while controlling risk and costs.

We continue to focus our research efforts along these three dimensions. Looking forward, we are confident that our stock selection model will continue to differentiate prospective winners from losers and that our portfolio construction, risk management and implementation skills will ensure that the alpha opportunities identified are translated into meaningful returns for your portfolio.

Market review
Against a backdrop of substantial volatility and heightened uncertainty, global equity markets fared poorly over the final quarter of 2007. The Global MSCI composite lost 2.3% over the fourth quarter (in US dollars). Emerging markets held up admirably on the back of domestic currency strength and somewhat different local growth dynamics. The MSCI Emerging Markets Index gained 3.7% over the quarter (in US dollars).

Domestic equities came under pressure during the quarter, with the All Share Index closing down 3%, but achieving respectable returns of 19.2% for the year as a whole. The losses were concentrated towards the end of the period, as both resources and financials became victims of the uncertain global growth outlook and continued negative sentiment associated with the global banking sector. Gold miners ended the year as the market's worst performer, losing 14.1% over the quarter and 20.6% over the year. The construction sector continued its strong run, to end the year 77.3% higher as the best performing sector.

Fund performance
The Investec Active Quants Fund continued to produce returns in excess of both the benchmark and the peer group. Fourth quarter returns were 3.1%, against the SWIX benchmark return of -0.4% and the peer group average return of -1.1%

For the year the fund returned 21.9%, 3.8% ahead of the benchmark (18.1%). The fund achieved first quartile performance over the quarter and year in the general equity sector. Notable winners over the quarter were overweight Kumba Iron Ore, Merafe and Exxaro as well as underweight AngloGold.

Portfolio activity
A perfectly optimal portfolio is a theoretical concept. Our expected returns change continuously as new information arrives and the market digests that information. A pragmatic approach is to maintain a near optimal portfolio by trading periodically. We rebalance the portfolio every three to five weeks depending on market volatility. Turnover at these rebalances is typically 5% - 10%.

The most significant buy side trades this month were BHP Billiton, Amplats, Telkom, Grindrod and Metlife. On the sell side we were most active in Kumba Iron Ore, Abil, FirstRand, Wilson Baily Homes Ovcon and MTN. The result of these trades at the sector level is that we have maintained our sector positioning of overweight resources and financials and underweight industrials. It is important to note that we do not take explicit sector views; rather these positions are the result of bottom-up stock specific trades.

Market outlook
For a quantitative approach such as ours there are three dimensions of value add:

1. Find more factors. They must have predictive power and be relatively uncorrelated with existing factors. That is, they must contain new and useful information.
2. Combine existing factors more optimally to produce better composite expected returns.
3. Improve portfolio construction and implementation to maximize returns while controlling risk and costs.

We continue to focus our research efforts along these three dimensions. Looking forward, we are confident that our stock selection model will continue to differentiate prospective winners from losers and that our portfolio construction, risk management and implementation skills will ensure that the alpha opportunities identified are translated into meaningful returns for your portfolio.