Further monetary tightening by the Reserve Bank will reduce spending of higher income consumers but the outlook for local manufacturers has improved due to the weaker rand. The large infrastructure projects underway, the Soccer World Cup, increased volumes of resource exports as current expansion projects come on stream plus an improved outlook for tourism are all positive factors. Higher interest rates and the weaker rand should result in an improved composition of growth away from high end imports and more towards exporters and local manufacturers. In time this should assist in reducing the current account deficit and helping ensure more sustainable growth in the longer term. We are facing the headwinds of higher interest rates which may put a dampener on short-term returns.

Nevertheless the rating of domestic equities is relatively low with many shares having declined to single digit price earnings ratios and dividend yields of 5% or more are common. Valuations are sufficiently attractive to offer good real returns for the long term investor and justify a continued large equity holding in spite of the somewhat diminished outlook; however the fund does have some cash holdings to take advantage of any opportunities that may arise. The Centaur Flexible Fund was awarded Standard & Poors award for the best per-forming portfolio in the Domestic AA Flexible category for the year ended 31/12/2005.

South Africa's economic outlook looks promising given low interest rates, high commodity prices and increased infrastructural spend. Taking this good economic outlook into consideration equities, despite their recent phenomenal performance, should still be the best place to invest over the next three years. Despite record commodity prices South Africa is running a substantial current account deficit making us reliant on foreign capital flows. Rapidly rising US interest rates pose a significant risk to the current worldwide economic boom and clouds our otherwise rosy outlook.

The Centaur Flexible Fund was awarded the Standard & Poors award for the best per-forming flexible fund for 2005. By investing in this fund an investor is able to invest in a company with a track record of outperformance with lower risk.

SA's economic outlook is bright boosted by China's enormous appetite for commodities and precious metals which has boosted the prices of these core exports. In addition low interest rates and the 2010 world cup are adding further impetus to domestic growth. Overall the economic outlook looks great and equities, which despite their excellent performance over the last two years, should still be the best place to invest. The major risk factor to an otherwise rosy outlook is SA's high current account deficit which makes us overly vulnerable to fickle foreign capital. The Centaur Flexible Fund which returned 46.6% over 2005 is an ideal investment for an investor who wants a core exposure to the equity market with a lower level of risk.