September saw a continuation of very strong equity market returns as Anglo American finally came to life, returning 17.7% for the month. The overall market returned just below 10% with resources up 16%, financials up 3.6% and general industrials up 10.4%. The Investec equity Fund returned 8.4% over one month and 19.3% over the last quarter. The driver of the resource sector out performance was no longer a rising oil price, but a strong break out of the gold price. Bullion's performance was all the more impressive as it occurred on the back of the strong dollar. Whilst the Rand traded firmer we still saw rising rand resource prices as it appeared that the South African monetary authorities must have be using the opportunity to accumulate reserves. We have a 30% weighting in resources which helped our relative performance.

The emerging market bond spread remains at levels which should support emerging market equities. Inflation whilst having risen locally remains well within the target band. Local and foreign bond yields have ticked up, but are not at concerning levels. Against this back ground our equity market is trading marginally above its ten year price earnings multiple of 14.2 times at 14.5 times. Relative to bond yields South African equities remain attractively priced. As long as earnings growth remains strong we feel that the market can continue to trade firmly - albeit a pull back can occur at any stage.

As stated last month we feel that the possibility of rising rand commodity prices means that the resource sector warrants more attention. Local economic conditions remain favourable for the consumer and fixed investment sectors, whilst the manufacturing sector has to work harder against competitor imports. We remain underweight the life assurance sector.

Against this background we have bought some gold shares. Valuations are not favourable, but the companies are seeing a rising revenue line and operational leverage to this could result in very strong earnings growth later in the year. We also reintroduced Mittal Steel South Africa into the portfolio as it appears as though the worst of the global steel destocking is behind us and the company will also be a beneficiary of local fixed investment spending.

The market has thrown some mean curve balls over the past five years: both the bear and the bull have had their turn, and rand volatility has been added in record doses. Gail Daniel, Investec Equity Fund's (IEF) manager through this tough period, has proved herself equal to the challenge, outpacing the general equity sector average by nine percentage points a year and the all share index by 12,5.

It has not always been plain sailing. IEF went through a sticky patch earlier this year when Daniel's strategy favouring domestic financials and industrials was left high and dry by an investor scramble into rand hedges. Though she is not averse to aggressive trading when needed, she decided to sit it out.

Time has proved her correct and IEF is back among the top-quartile performers. "You have to know when to hold on and when not to," says Daniel. For now, she is holding on to an overweight position in growth shares that stand to benefit from strong consumer spending and general strength of the domestic economy.

"I believe [economic] growth is understated by official figures," says Daniel, pointing to earnings upgrades way ahead of downgrades. And though valuations are above the long-term average, she adds that equity is cheap relative to cash and bonds. "Equity will continue to outperform bonds for a long time," she adds.

Changes to IEF's portfolio during the past quarter have been subtle rather than profound. For instance, Daniel has added modestly to IEF's gold share exposure, increasing it from 2,8% to about 4%. "Gold has broken out decisively," she says.

MTN, one of IEF's top 10 holdings in June, was dropped in favour of rival Vodacom through a new holding in Venfin. Daniel says exposure to MTN was cut to zero and later rebuilt to 3,5% on price weakness. IEF remains overweight in banks and long-held cyclical retailers such as Edcon, Truworths and Foschini. A position in Woolworths is also being built.

Overall, Daniel's management of IEF reflects an adeptness at reacting to changed market conditions that has made the fund one of the sector's long-term winners.

Financial Mail - 7 September 2005

June proved to be a good month for the Investec Equity Fund as the general retailers and the gold shares returned more than double the 2.96% return of the JSE All Share Index (ALSI). The Fund recorded a return of 3.4%. We also benefited from a 5% weighing in Richemont, which returned almost 10% on the back of strong results.

The Rand rebounded by 1.6% during June, which we consider to be a weak retracement given the oversold level that prevailed at the start of the month. It seems as though the political and monetary authorities are happier with the currency at these levels or weaker. Economically South Africa continues to grow well, and inflation and inflationary expectations remain well contained. Large caps returned 3% ahead of their mid and small cap counterparts, with returns of 2.9% and 2% respectively.

Another interesting feature of June was the decoupling of the gold price and the US Dollar - Euro exchange rate. As the US Dollar strengthened to USD1.20 = 1 EUR the gold price made a year to date high at $440 / oz. Commodity prices in general held up well given the strong US Dollar, lending credence to the China bulls.

We are looking forward to some positive earnings pre-announcements and robust trading statements from local companies. Also, we are inclined to believe that as the US Dollar approaches USD 1.18 = 1 EUR, we are likely to see a less volatile period in the currency markets. Our market remains well supported by firm bond yields and an emerging market bond spread that is close to 300 basis points over US treasuries.

We have added a few select non resource shares, which have some Rand hedge characteristics such as Steinhof and Alexander Forbes. These counters should now benefit from more favourable macroeconomics and in some cases have trimmed their cost structures after some tough years. We still like the local theme and believe we will see strong earnings upgrades there as well as in some of the resource counters. We trimmed Naspers during the month after an exceptional run.

Investec Equity (IE) entered 2005 with a bearish stance on the US dollar and a positive one towards domestic industrials and financials. Things did not work out this way and IE's short-term returns paid the price. But this does not represent a disaster, particularly given Investec's adeptness at reacting quickly to changed market conditions. IE's returns over two months are again in line with its sector average.

Financial Mail - 1 July 2005

April was a harsh month for equities with the JSE All Share Index (ALSI) declining 5.2% over the month 2% more than the decline of 3.2% in the Equity Fund. April saw a reversal of the previous out performance by resource shares over their financial and industrial counterparts. The resource sector declined 8.6% although the oil and gas sector dominated by Sasol managed to have a flat performance. Banking stocks, on the other side of the Rand fence, declined by under 1%. We expect positive performance to resume in this sector on the imminent conclusion of the Barclays - Absa deal.

The " surprise" 0.5% cut in the bank rate and hence the prime overdraft rate during the month, bodes well for a continuation of the firm consumer spending. Although the general retail sector has declined 6.7% in the last 3 months, and 2.1% in April, economic conditions continue to remain supportive. The counters picked up from mid month on the rate cut news. It is also, by no means certain, that the interest rate cycle has bottomed out. The future direction of interest rates will be influenced by the level of the Rand - US Dollar exchange rate, the price of oil as well as other variables. At around R6 = 1USD the Bank is likely to cut interest rates again. The Reserve Bank correctly views a high oil price as a tightening of the consumer and is likely to cut interest rates in response to an oil price of over USD 50 per barrel. They will watch carefully for second round inflationary effects, but have not witnessed any yet.

The strong local consumer story remains in tact, and after a range trading this year, the shares are now at levels from which good upside exists.

March proved to be a bleak month for equities, with the JSE All Share Index (ALSI) declining 0.9%. The index however did a lot better than the underlying components and our fund suffered as the financial and industrial shares underperformed their mining counterparts.

Large capitalisation shares outperformed their mid and small capitalisation counterparts on a weaker Rand. Indeed, the US Dollar did well during the month strengthening from 1.3184 against the Euro to 1.29. The Rand declined by 6.9% against the US Dollar. We believe that the Rand will remain broadly stable within a range of R5.80 = 1 US Dollar to about R6.30 = 1 US Dollar. We do not expect a large sell off in either the currency or emerging markets in general. Valuation levels remain supportive for emerging markets and economic excesses lie in the US, in our view, not in the emerging markets.

The local shares underperformed the Rand hedges in March, but local companies remain confident about their prospects. Anecdotal evidence confirms continued strength in the retail and banking sector and with attractive valuation levels we remain convinced that a bit of patience, after a superb run last year, will be well rewarded.

December proved to be another supportive month for the market with the Investec Equity Fund returning 4.5% against a return of 1.4% for the JSE All Share Index (ALSI) and 3% for the JSE All Bond Index (ALBI). US Dollar weakness was yet again a feature of the month with the US Dollar moving over 2% weaker against the Euro and 2.9% weaker against the Rand.

Against this background locally focussed shares yet again performed well, with banking shares up 4.6% and general retailers up over 5%. It is interesting that despite a total return of 78% for calendar 2004, general retail shares only re-rated modestly from 12 times earnings to 13.7 times earnings over 2004. Banking shares in contrast re-rated from 9 times earnings at the start of 2004 to 13.2 times at the end of 2004. Resource shares however have not universally got cheaper with the price earnings ratio on the sector rising from 14.2 times at the start of the year to 17.5 times at the end of the year. Indeed out of the major components only Billiton got substantially cheaper relative to earnings. In other words the market is still pricing in a weaker Rand and given our sceptism on the US Dollar we will be keeping the portfolio more or less as is.

US 3 month interest rates have been lower than inflation for over two years now and it appears as though the monetary authorities in the US are going to try and restore rates to positive real levels. This is unlikely to provide a highly supportive backdrop for US equities. Ironically, as long as the US market delivers moderate returns, either positive or negative our market could do reasonably well. We will be alert for the impact of a less benign US policy .