Looking through the current tough times, interest rate sensitive stocks offer good value as the economy moves closer to the next down cycle in interest rates. The Fund decided to remain invested in these counters via financial and consumer services shares. The Fund has 29.2% exposure to the financial sector and 14.6% to the consumer services sector.The construction sector experienced price declines on the back of an overall negative market sentiment in the past few months. However, with recent announcements of strong earnings growth, share prices are recovering their losses. The outlook for the construction sector remains robust as infrastructure spend continues. The Fund has 9.4% invested in this sector after increasing its PPC holdings. Afrox, the largest gas and welding products supplier in South Africa, had a return on equity in excess of 15% for the past 15 years and is trading at very attractive levels. The Fund increased its investment in Afrox to 4.5% of its assets. The cyclical downturn in the automotive industry resulted in all stocks with any divisions related to this industry being hammered down. Barloworld and Steinhoff were identified as two shares whose current share weakness are not justified by the pressure on motor sales. Barloworld's profits mostly come from its very successful Caterpillar division and Steinhoff's principle activities are manufacturing and retailing of household goods globally. Hence the Fund has a total of 5.9% invested in these two shares. The unbundling of British American Tobacco out of Richemont and Remgro will unlock substantial shareholder value and will provide shareholders with choice and diversity of investment opportunities. The Fund has 12.9% invested in these two stocks. Vox Telecoms' shares were given as collateral to RMB Holdings by Dealstream for their single stock futures position with RMB. After the collapse of Dealstream, RMB sold down Vox without any regard of the underlying fundamental value of the share. The Fund decided to make use of this short term trading opportunity and invested 1.1% of the portfolio in it.

The Fund has a 19.9% investment in the Imalivest Worldwide Flexible Fund. This investment gives the Fund an 8% direct exposure to international cash as well as more insight and control over international equity investments. The Fund currently has 11% of the portfolio in cash.

The Fund decided to follow a cautious approach and increased the cash balance of the portfolio from 27.4% at the end of November to 51.6% at the end of December. In addition the Fund continued with portfolio insurance via put-options purchased against 30% of the Fund's capital.

Construction shares outperformed the market by 57.7% in the past year, thus increasing the valuation multiples and reducing the relative attractiveness of the GDFI shares. The expected extended fixed investment cycle should drive further margin expansion and therefore the Fund remained invested in Esor and Sanyati representing 13% of the Fund's assets.

Famous Brands is an integrated food and beverage company focusing on franchising quick service restaurants. The company's history of earnings growth and profitability combined with an attractive business model and industry position encouraged the Fund to remain invested in this share. The Fund has 11.3% of its portfolio invested in the consumer services sector via Famous Brands, Foschini, JD Group, Lewis and Truworths.

Richemont, a pure rand hedge company, owns a portfolio of well-known international brands. Periods of economic downturn usually have a slighter affect on its clientele and therefore future sales growth should be achieved. Earlier Richemont announced the possible unbundling of its interest in British American Tobacco and this should unlock shareholder value. The Fund has a rand hedge exposure of 16% via Richemont and the Allan Gray Orbis Global Equity Feeder Fund.

Financials underperformed the market by 16.9% in 2007, largely due to negative sentiment caused by tighter credit markets. The Fund is of the opinion that this will continue for some time and accordingly decided to decrease its exposure in financials to 9.1% of the portfolio.

In November the Fund invested 6.2% of its assets in Anglogold Ashanti for the reason that the November gold price rally was not supported by the gold mining companies' share prices. In December the Fund decided to take profit on the position and the AngloGold shares were sold.

The Fund was invested in AECI, a company with a substantial property portfolio and attractively valued chemical and explosives business. On 28 November AECI announced the closure of its Sans Fibres division and as a result the retrenchment of 850 people. This caused a lot of negative sentiment and hence the Fund decided to exit the positon.