The SA equity market ended the quarter up 6.7%, a figure that hides the underlying volatility during the period which saw a fall of as much as 9% during August, and a subsequent recovery to end the month marginally up by 0.7%. The bulk of the returns were recorded during the month of September (5.0%).The quarter was dominated by market concerns on sub-prime and credit problems, which resulted in a 50 basis point (bp) rate cut by the Fed taking the fed funds rate to 4.75%. Oil and gold continued their upward charge as the US dollar weakened and the Fed rate cut resurrected languishing base metal prices.

Resources were the best performing of the major sectors, with a return of 13.5%. Financials declined by 1.6%, while industrials increased by 3.3%. General mining (+16.8%) was the best performer of all the minor sectors, on the back of a rebound in commodity prices, followed by construction (+13.9%) and beverages (+10.7%) following the release of SABMiller's strong trading update.

Household goods (-19.5%) was the worst performing sector, followed by healthcare (-15.7%) and then electrical equipment (-9.8%).

The fund has large positions in the platinum sector via holdings in Impala Platinum and Anglo Platinum, both of which we believe show significant value. We increased the holding of smaller mining concerns at the expense of larger miners. The fund also has sizable positions in selected financials and industrials that we believe continue to be undervalued by the market. Our preferred financial exposure continues to be in the banking sector which, despite significant increases in domestic interest rates, is expected to continue to deliver robust results going forward. On the industrial front, the fund continues to have large positions in MTN, Naspers and Astral, all of which are not pricing in their long term prospects. We continue to seek investment in smaller companies where valuations are still reasonable.

The fund started the year on a positive note and continued in this vein for the quarter, albeit slightly muted. There were vast differences in performances, with resources (up 6.8%) and industrials (4%) significantly outperforming financials (-2.4%). The fund is tilted towards industrials, hence the mildly positive performance over the quarter. The transactions during the quarter were driven by a mix of stock-specific and theme-related issues. We took profits on construction-related shares such as Murray & Roberts and WBO holdings. Although the order books are at all-time highs, and they have been successful in becoming lead contractors in mega projects (Gautrain, King Shaka, Stadiums), we felt that the current premiums were a bit aggressive given the operation risk in delivering the projects. We also sold out of Truworths following a strong performance, and to decrease the overall exposure to interest rate sensitive shares. The new SA National Credit Act will also impact the revenue growth of credit retailers and the banking sector. Commentators have increasingly warned equity investors against overexuberance. We certainly don't dispute the view that the potential rewards for equity investors look less attractive compared to any other time over the last four years. The sharp sell-off in equities in late February and early March will undoubtedly increase the volatility of the unit price. However, despite the volatility in share prices, we still believe that equity funds should reward investors over time. As a result, investors are not advised to disinvest from the asset class at this point, provided their risk profiles allow for equity exposure.

REVIEW OF Q4 2006

The unit price of the fund broke the Nambian $11 level for the second time during 2006 and managed to maintain the level at year-end. The strong nominal performance during the quarter concluded a four-year period where the fund provided rich rewards for investors in Southern African equities.

Familiar themes played out during the quarter. We managed the fund with low liquidity holdings throughout the quarter. The overweight positions in resources counters were trimmed. We sold diversified miners and lightened both gold and platinum shares. However, we did not want to lose the randhedge qualities of the portfolio and hence we continued to add to Richemont. The exposure to local industrials was also increased as some of these counters still appear attractively priced after the selldown during the second quarter.

Commentators increasingly warn equity investors against overexuberance. We certainly don't dispute the view that the potential rewards for equity investors look less attractive compared to any other time over the last four years. However, despite the volatility in share prices, we still believe that equity funds should reward investors over time. As a result, investors are not advised to disinvest from the asset class at this point, provided their risk profile allows for equity exposure.

REVIEW OF Q1 2007

The fund started the year on a positive note as it comfortably outperformed cash and held its own against competitors. This good start can largely be attributed to a strong yet volatile start to the year by local equities.

The transactions during the quarter were very stock specific rather than theme related. Initially, we sold Sasol as the uncertainty around the issue of windfall tax drags on and the cost pressure remains high for this company. However, we added to gold shares and increased our holding in Billiton following the counter's underperformance in late 2006. The overweight position in MTN was trimmed following a sterling performance from this company over the last eight months. We added to a few small cap counters, of which City Lodge Holdings was the most significant addition to the portfolio.

Commentators increasingly warn equity investors against over-exuberance. We certainly don't dispute the view that the potential rewards for equity investors look less attractive compared to any other time over the last four years. The sharp sell-off in equities in late February and early March will undoubtedly increase the volatility of the unit price. However, despite the volatility in share prices, we still believe that equity funds should reward investors over time. As a result, investors are not advised to disinvest from the asset class at this point, provided their risk profile allows for equity exposure.