On November 1, the fund merged with BoE Managed and FT NIB Balanced, and it is now run by Quaystone's Anet Ahern along the lines of BoE Managed. During the September quarter, Ahern was a heavy buyer of SABMiller as well as Liberty, Dimension Data, Tiger Brands, AngloPlat and Sasol. Capital Alliance, Iscor, Investec and Comparex were sold.

On the 1 November 2003, the BoE Managed Fund, FTNIB Balanced Fund and the Nedbank Managed Fund merged to form the Nedbank Managed Fund. The history of the Nedbank Managed Fund has been retained. This fund is part of the Active Return Range.

The equity exposure increased by 1.5% and although share prices have improved since the low levels at the end of May, the fund manager's still believe that this asset class offers value. The overall level of interest bearing assets was reduced to 25.5%, a reduction of 1.4% that came out of the cash portion. The fund manager's reduced the cash level in the portfolio in light of the declining interest rates.

The higher equity exposure and lower cash exposure was to the benefit of the fund as equities strongly outperformed cash. Within equity, there were no major changes done to sector exposure. The relative price action in the sectors caused resources, industrials and small company exposure to increase, while the financial exposure declined.

The price action was driven by investors, moving into commodity shares, as more evidence of a global economic recovery started to appear. Declining interest rates benefited industrials, and small companies.

Global bond markets ended weaker on improved economic growth prospects and emerging bond markets bucked the trend supported by a global search for yield. US dollar weakness, rising commodity prices and favourable interest rate differentials supported the rand, while local inflation continued its downward trend. The central bank reduced the repo rate by 200 basis points. Money market yields declined sharply, resulting in a flatter yield curve slope, short and ultra-long dated bonds closed stronger while medium-dated bonds closed slightly weaker.

During the quarter, the fund manager's increased the portfolio's modified duration slightly, reduced the overweight position in the 3-12 year sectors (mainly by selling R194), and the underweight in the 12+ sector (by buying R157 and R201). The fund manager's also participated in the new Sasol and Anglogold debt issues.

The increased equity exposure and profit taking of the bond holdings benefited the performance of the fund over the quarter.

The fund performed in line with the JSE All Share, which returned 9.7% for the quarter. Exposure to equities was increased over the period by just under 10%, as it offers strong value. The overall level of interest bearing assets was reduced to 26.9%, a reduction of just under 10%, with the bulk of this coming out of the short end of the curve. Bonds performed strongly over the quarter, and profits were taken on some of this investment.

Within equities, resource exposure was further reduced by 2.5%, as the fund manager's do not feel that the share prices fully reflect the strength of the currency. A number of resource companies issued profit warnings through trading update statements and in the fund manager's view the risk of further earning disappointments persists. Exposure to financials and industrials was increased. Financials had a strong quarter, and the overweight position helped performance overall. Industrials also had a good quarter, contributing significantly to returns.

Local equities are attractively priced and continue to offer value. Financials continue to be the most favored sector. The stronger rand will negatively affect some of the exporters, and the fund manager's have been selective as to the equity counters the funds hold. Global equity markets face a high level of uncertainty, however, local valuations compel them to hold a significant level of domestic equities. TMT exposure will be kept at modest levels given uncertain prospects, which may restrain performance.

Global bonds strengthened dramatically and emerging bonds moved in tandem, supported by the global search for yield. The rand ended the quarter on a firm footing, while domestic producer prices decreased sharply. An official correction to CPI data contributed to an improved inflation outlook. The central bank reduced the repo rate by 150bps and money market rates declined sharply in anticipation of further easing. The portfolio has been managed in accordance with expected curve normalisation, favoring medium dated bonds. The R153 exposure was reduced towards quarter end. The modified duration of the fund will be maintained close to the benchmark, but will still be underweight. The fund manager's will start unwinding the curve normalisation tilt into strength, and reduce the underweight position at the long end into weakness.

Exposure to equities was reduced over the period by 4%, to a weighting of 64%. While the fund manager's see value in equities, specific holdings were reduced, as they felt there might be a risk from a slowdown in global growth. The overall level of interest-bearing assets was increased to 36%, with additions being made in the 3-12 year area, increasing the modified duration to 4 years.

The reduced equity exposure and higher bond holdings benefited the performance of the fund over the quarter. However, the relatively high equity exposure of the fund impacted performance, with the fund returning .9.8% against the JSE All Share return of .16.3%, and an All Bond index return of 4.8%. The reduced holding in resources counters added to performance, as this sector significantly underperformed the financial sector over the quarter.

Local equities are attractively priced and, together with a positive view on the local economy, continue to offer value. The stronger rand will affect some of the exporters negatively, and the fund manager's have been selective as to the equity counters the portfolio holds. Global equity markets face a high level of uncertainty, however, local valuations compel the fund manager's to hold a significant level of equities.

Financials continue to be the most favoured sector. While the portfolio has a reasonable exposure to resource stocks, the fund manager's have lightened this in light of the stronger rand.

Nedcor Retail Investments have adopted the strategy of outsourcing the investment management of their unit trust funds on a "best of breed" basis, either within the wider Nedcor group where performance and skills substantiate this, or to third-party asset managers.

Old Mutual Asset Management will continue to manage the Nedbank Managed Fund.

Local markets were dominated during the last quarter of 2002 by the firming rand. This put pressure on rand-hedge stocks and tended to be positive for bonds and financial shares. The JSE all share index gave a return of -1,4% for the quarter with resource shares down sharply and financial and industrial shares slightly up. Small- and mid-cap shares continued to perform well with the latter up over 11%. Global stockmarkets continued to show nervousness but did generally end the quarter with positive performances.

Bonds continued to strengthen as the currency firmed. In particular, the long end of the bond market was aided by a shortage of scrip. The market appears to be looking through the current high inflation numbers and focusing on economic prospects for next year.

The fund performed above average for the quarter with its high domestic asset structure. For 2002 and longer periods the fund has performed comfortably above the median. The fund is positioned first in its category for the five-year measurement period.

During the month the fund experienced net disinvestments, which had the effect of reducing the cash component. In addition, the duration of the bond portion was reduced slightly. With the rand currently stronger than most expectations the fund has increased its holding of rand-hedge shares.

The short-term outlook for global markets remains uncertain. Apart from the threat of war in the Middle East, economic conditions in the US and other major markets are fragile and valuations still not cheap. In addition, the confusion regarding the level of real earnings in companies is still present. The fund manager's therefore remain cautious about the prospects for global stockmarkets and are not convinced that we have seen the bottom yet.

For domestically driven companies trading conditions continue to look good with most recent results above expectations. Companies are benefiting from robust consumer spending, higher export earnings and some widening in margins. Notwithstanding the positive performance that the world has seen recently the fund manager's still think that good fundamental value exists in many local financial and industrial shares. The fund is therefore expected to remain heavily invested in this sector. Resource shares have been softer recently and remain very dependent on the rand and the global economic recovery, leading the fund manager's to believe that the fund should maintain a relatively high exposure to equities. The fund manager's preference remains with local industrial shares, but they are increasing the exposure to rand-hedges as the currency firms.

Bonds have been strong lately and appear to be factoring in much lower inflation numbers. The fund manager's remain cautious about the long end of this market and would prefer to wait for solid evidence of inflation and interest rates topping before increasing the funds exposure.

The fund is therefore expected to remain with a preference for local equities. This is expected to be the sector of choice over the next few quarters unless global and local economic growth collapse.