Developments internationally have resulted in a more benign environment for bonds. The sub prime debacle in the US and the ensuing liquidity crunch has resulted in an easing of monetary policy, particularly by the Federal Reserve Bank, with other central banks moving to neutral. The net result has been pressure on the USD, which has benefited commodity prices. We believe the Fed will continue to relax policy at a more rapid pace with resultant pressure on the USD. This will support commodity currencies like the rand, with positive spin-offs for inflationary expectations, locally. The Reserve bank is likely to continue displaying determination to fight inflation expectations. The South African listed property sector recovered strongly and was up 9.5% in the third quarter. The drivers were good results from companies reporting during the period, corporate actions and ongoing demand for listed property shares.

Financial markets were quite volatile over the period led by a sell-off in the bond markets. Growth in demand for credit from South Africa's private sector slowed marginally to 24.84% year-on- year in May from 25.08% in April.

The National Credit Act will probably prompt some further slowdown in private credit growth in the coming months. Inflation data released has hardened the case for another interest rate hike in August due to central bank concerns that CPIX inflation will remain outside the banks 3 to 6 percent band for longer than expected.

The South African listed property sector fell 1.6% in the second quarter. After a very strong performance for the first quarter the sector fell on profit taking and concerns over rising interest rates. The major contributors to performance were ApexHi C, Hospitality B and Acucap, while the detractors were ApexHi B, Monyetla and Sycom. The fund was a net seller of equities.

Cash was the best performing asset class for the month posting a return of 0.69%. Money market rates steadily increased across the curve during the month of June. All the money market rates have adjusted higher in anticipation of a 50bpt rate hike at the next MPC meeting, which will be held on the 15 and 16th of August 2007.

The first quarter of 2007 was characterized by high volatility, especially from commodity and international equity markets, but recovered well from their lows. Domestically, bonds are likely to take little direction from US Treasuries but to remain focused on domestic inflation developments and the rand. In this regard, movements in the Rand and the international price of oil will play a key role. The bond market is unlikely to entirely price in a rate hike for April, following the release of tamer than expected February inflation data.
The following shares contributed to above average performance over the past quarter: Acucap, Apexhi C, Growthpoint, Hospitality B, Madison, Resilient and Vukile.
The following shares detracted from performance: Ambit, Apexhi A, Apexhi B, Calulo, IFour, Redefine, and Siyathenga.

The SA Listed Property sector performed strongly in the 4th quarter with a return of 19%. This was driven by good results from companies reporting during the period. Income distribution declared was better than expected. The fundamentals are still strong with rising rentals, lower vacancies and lower cost of funding. Consolidation continues to be an ongoing theme in the sector. The listed property sector still offers value and we maintain the overweight position.