World markets ended the quarter in positive territory with the MSCI World Index returning 4.7%. Both US and European markets continued to build on last quarter's positive performances with the S&P 500 and FTSE 100 indices closing the quarter up 5.7% and 3.1% respectively.
Commodity prices in general had a difficult quarter with the price of crude oil, in particular, coming under significant pressure. Easing concerns over geo-political tensions in the Middle East and possible supply disruptions saw the oil price retreat sharply from its previous quarters closing level. The spot price of oil closed the quarter down 16.6% while the prices of Gold and Platinum were also weaker over the period.
Local markets had a strong quarter with the FTSE/JSE All Share Index returning 6.3% over the period. The key contributors to performance were the financial and industrial counters which rebounded strongly after a poor performance in the second quarter of the year. The FTSE/JSE Financial and FTSE/JSE Industrial indices ended the quarter up 9.9% and 11.7% respectively.
The FTSE/JSE Resources Index ended the quarter up 0.7% despite weaker commodity prices. A continued depreciation in the local currency provided support to the local resources index and largely offset the negative impact of softer commodity prices. The rand ended the quarter at 7.74 to the US dollar, 8.2% weaker than its previous quarters closing level.
For the quarter, the Kagiso Top 40 Tracker Fund marginally underperformed its benchmark the FTSE/JSE Top 40 Index by 0.1%. The fund produced a total return (net of fees) of 5.7% relative to the benchmark, which was up 5.8% for the quarter.
All index changes that occurred during the quarter were timeously acted upon so as to minimise the relative risk in the fund.

Kagiso Asset Management
Portfolio Manager

The key feature over the quarter was the significant downwards repricing of risky assets and especially emerging market assets. The US Fed continued raising interest rates as it worries about inflation risks. Many emerging market central banks followed suit this quarter. This global tightening action and accompanying investor uncertainty saw world markets come under significant pressure towards the end of the quarter. In local currency terms, the MSCI World index and the MSCI Emerging Market index ended the quarter down 1.1% and 5.1% respectively.
Despite the sell-off across emerging markets the local bourse ended the quarter in positive territory with the FTSE/JSE All Share index up 4.9%. This strong performance however masks the difficult quarter that prevailed and the volatility that was experienced intra- quarter.
On a sector basis, the FTSE/JSE Resources index had a strong quarter despite only marginally firmer commodity prices. The sector ended up 21.3% - mainly as a result of a sharp depreciation in the rand. The rand ended the quarter at R7.15 to the US Dollar, 16.7% weaker than its March 2006 closing level.
While resources stocks rose strongly over the quarter, the local financial and industrial stocks came under significant pressure as global and local interest rates rose. Increasing inflation fears, on the back of the weaker currency and stubbornly high oil price, continued high credit extension growth and the very high current account balance saw sentiment shift towards further local tightening. As a result, the interest rate-sensitive financial and industrial sectors ended the quarter in negative territory. The FTSE/JSE Financial index and FTSE/JSE Industrial index ended the quarter down 6.0% and 5.3% respectively.
For the quarter, the Kagiso Top 40 Tracker Fund produced a total return (net of fees) of 7.0% relative to the benchmark, which was up 7.2% for the quarter. The fund remains the top index tracker within the General Equity Large Cap unit trust sector over most periods.
All index changes that occurred during the quarter were timeously acted upon so as to minimise the relative risk in the fund.

Kagiso Asset Management
Portfolio Manager

Kagiso Top 40 Tracker (KT40) is one of five funds in its sector tracking the Alsi top 40 index. KT40 has achieved a 99,99% correlation to the index over three years, the highest of all five funds, and at 0,57% has the second-lowest annual management fee. Stanlib Alsi 40 has a lower fee (0,48%) but a higher tracking error, evident in a total return of eight percentage points below KT40's over three years. At 1,14%, Sanlam Index has the highest fee.

Financial Mail - 04August2006

World markets ended the quarter in positive territory with the MSCI World Index up 5.6%. US markets had a strong start to the year with the S&P 500 and Dow Jones industrial average returning 4.2% and 3.7% respectively. Both European and Asian markets showed strong growth over the quarter.

Commodity prices were key drivers of markets during the quarter with gold, platinum and certain industrial metals, notably copper and zinc, reaching new highs. Rising commodity prices propelled the local market forward but its affect was somewhat offset by a stronger currency. The rand dollar exchange rate ended the quarter at R6.10 to the US dollar, 3% stronger than its closing level last year.

Local markets had a strong quarter with the FTSE/JSE All Share Index returning 13%. The sharp rise in commodity prices together with a still favourable economic outlook saw the local market perform well across all major sectors. The FTSE/JSE Resources 20 Index was up 13% while the FTSE/JSE Financials and FTSE/JSE Industrials indices were up 15% and 13% respectively.

The fund produced a total return (net of fees) of 12.2% and remains the top index tracker within the General Equity Large Cap sector.

All index changes that occurred during the quarter were timeously acted upon so as to minimise the relative risk in the fund.

Kagiso Asset Management
Portfolio Manager