We were slightly short on resources relative to the Index when the run started in June, we have since then increased our exposure in this sector. We have increased our equity weightings to 68% and overall effective equity exposure to 51%.

With the Fed having increased the rates by 25 bps and their intention to further increase interest rates, higher oil prices and costly natural disasters, we have become concerned about the current equity market levels. We therefore rolled-up our arbitrage structure to a higher level of 14500 relative to 11400 at the beginning of the year from 13800 in August when the market was at 14844. This will ensure that by the end of the year we produce returns above inflation for our clients should we experience a stagnant market from these levels. With the limited returns expected from the fixed interest assets, our bonds exposure will be maintained at the current level of 5%. We remain overweight in cash.

The fund performance for the quarter to 31 December 2004 was up 5.17%. Our equity benchmark, the Topi40 Equity Index returned 6.25% relative to 6.90% of the MetAM tracker equities. The Quants Stocks returned 24.52%, making the overall equity return 9.78%. This together with the hedge resulted in a positive equity contributiion of 4.52% for the quarter.

Bonds returned 4.97% for the quarter, which was also slightly higher than the All Bond Index at 4.67%. Due to our low weight in this asset class the contribution was only 0.36%.

Cash contributed 0.27% to performance for the quarter. This quarter return was 1.80% relative to 1.81% of the 3 month STeFi Index.

For the next quarter, we are positioned for a stable Rand at about R6/$. If true, this will increase the likelihood of an interest rate cut in February. This should bold well for equities more than bonds, as bonds are already pricing in some interest rate cut.