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%. Bonds were flat in September and have returned 1.1% over the last three months. The Investec Managed Fund returned 5.86% over one month and 13.9% 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 28% 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. Although equities may pull back, given the earnings growth outlook and our benign expectation for interest rates, we still believe that equity returns will exceed those of other asset classes over the next twelve months.

The fund seeks to secure an investment medium for unit holders with 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. We have up weighted the fixed investment sector.

June proved to be a good month for the Investec Managed 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 3.3%. 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.

The South African bond market benefited from a decline in US 10 year yields, with the ten year trading below 4%. The JSE All Bond Index (ALBI) returned a respectable 2.7% for June.

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 Venfin. These counters should now benefit from more favourable macroeconomics. 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.

We are 71% invested in the equity market. Whilst the valuation case for equities on an absolute basis is not that strong, relative to bond yields equities remain attractive and earnings revisions are very supportive. The case for emerging markets as an asset class remains firm. We have switched a small portion of local bonds into offshore cash and will be looking at redeploying it into one or two select shares, where we believe we have an information advantage.

A solid exposure to domestic financial and industrial shares worked well for Investec Managed in 2004 and the first two months of 2005, but this happy situation came to an abrupt end in March as sentiment moved sharply in favour of big-cap rand hedges. Despite this, manager Gail Daniel expects the "strong local consumer story" to remain intact, a view that makes this a fund for those who don't believe rand weakness will continue.

Financial Mail - 17 June 2005

April was a harsh month for equities with the JSE All Share Index (ALSI) declining 5.2% over the month 3% more than the decline of 1.56% in the Investec Managed Fund. The JSE All Bond Index (ALBI) rose 2.06% as the Rand traded towards the R6 = 1USD mark again and short term interest rates were cut locally. Bonds are now flat over the last three months, whilst equities are marginally negative. We expect the equity performance to improve from here. Our equity weighting is currently in the mid 60% range, when preference shares and property are excluded form the equity weighting, and we will be selective buyers from here. 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.

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, and the strong local consumer story to remain in tact.

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.

Our underweight positioning bonds finally paid off, as a sell off in the American bond market impacted on local bonds. The JSE All Bond Index (ALBI) declined 3.67% during the month. Over a year bonds are trailing equities returning 15.2% against 27.2% for the top 40 shares. Our asset allocation remains skewed in favour of equities although with a greater degree of caution.

December proved to be another supportive month for the market with the Investec Managed Fund returning 4.1% against a return of 1.4% for the JSE All Share Index (ALSI) and 3.1% for the JSE All Bond Index (ALBI).

The pattern of the past month was also apparent for the duration of 2004, with the portfolio return 38% for 2004. Our strategy of being long the new South Africa story worked well as the scepticism towards South Africa was replaced by optimism. We upped the equity weighting into the surprise rate cut in July and were rewarded by being long in a surging bull market.

With banking shares having re-rated from 9 times earnings at the start of 2004 to 13.2 times at the end of 2004 and general retailers having re-rated from 12 times to 13.7 times the valuation gap is no longer that large. 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. For now we remain at an equity weighting of 69%, bonds 13.4% and cash and cash 17.6%.