October saw a sharp rebound on US stock markets. Spill-over to the local market was limited by the steady strengthening of the rand during the month which took the shine off the rand hedges. Both the fund and its benchmark were almost flat for the month. The fund has outperformed its benchmark by nearly 14% over a six-month period.

Markets remain extremely volatile. Recent economic data out of the US indicates that the recovery and aversion of a double-dip recession is in balance. We believe that risks lie on the side of US markets slipping further and do not buy into the bear market being over. On the other hand, the local economy is performing well and we remain overweight in SA industrials and banks. We will be watching for peaks in inflation and the interest rate cycle to assess the impact on the consumer and the economy. The fund has a healthy exposure to small- and mid-cap industrials.

During the month, Anglo Platinum was switched into Northam. Billiton, Anglos, Sasol and Abil were sold. The fund took up positions in Grintek, Mustek and MTN. Exposure to gold was increased and Harmony and Goldfields were increased.

The fund was up 1.5% in September while the All Share Index declined 2.9%. US and European markets experienced another very poor month. On the JSE, resources and banks outperformed while technology, life assurers and household goods (Richemont) were sharply down.

Markets remain dominated by concerns over the state of the US economy. The fund managers believe the balance of risk lies towards a further sell-off on global markets driven by war talk, worse than expected earnings and a jittery US consumer. Accordingly, they have adopted a more cautious positioning with increased cash levels. The fund managers expect gold to continue to perform well in this environment and have added to the exposure. They continue to prefer shares dependant on the local economy and remain overweight SA industrials and banks. However the fund managers remain cautious of the effect of recent interest rate hikes on the local economy and weightings in consumer stocks and are being reduced.

During the month, Gencor was switched into Impala and Anglo Platinum. Billiton, Anglos and Cashbuild were added to. We sold Iscor, Investec, Tiger Wheels and Liberty.

The Fund gained almost 3% during the month after equity markets made a low for the year in early August. Weakness provided an opportunity to increase exposure to oversold commodity shares early in the month which benefited performance. Small and mid-cap industrials continued to outperform on the back of better than expected results which also aided fund performance.

We find ourselves in an environment where the global economic recovery is showing signs of stalling which continues to spook equity markets while the performance of the local economy and level of consumer demand continues to exceed expectations. Despite the real threat of further hikes, we remain bullish on local industrial and financial companies on account of the attractive valuations, dividend yields and relatively robust market conditions. The fund managers remain wary of global equity markets and continue to lighten on stocks with exposure to global markets into early September. The Fund is building up a position of underweight resources, overweight local industrials and onweight financials (with a preference for banks). The level of cash has been increased. The Fund retains a healthy exposure to undervalued small and mid-cap industrial
shares with good earnings and dividend expectations.

Stocks sold included Remgro, Old Mutual, Sanlam, Barloworld and Illovo. AECI, Iscor, Tigerbrands and ABSA were added to the Fund and the exposure to Sasol was increased.

The Fund performed well in April beating its benchmark, the ALSI, by almost 6%. Shares which performed well included Abil, Investec, Nedcor, Super Group, Murray & Roberts and Iscor. With the exception of Golds and Platinums, Resource Stocks generally underperformed Financials and Industrials during the month on the back of a strengthening Rand. However, the Fund Manager intends retaining a full Resource weighting in anticipation of the global conomic recovery giving rise to improved commodity prices and volumes. The Fund has taken positions in Consumer Industrial counters on the back of compelling valuations and a better than expected outlook for the South African economy. The exposure to Financials remains under-weight while questions remain over the timing and extent of further interest rate hikes.

During the month Sappi, Iscor, Investec, Richemont and Aveng were sold or reduced. Additions to the Fund included Liberty, PSG Investment Bank, Nedcor, Truworths and Nampak.

The switch of the Fund to an over-weight position in Resources at the expense of financials was completed in early March. The Fund performed strongly, outperforming its benchmark. The fund manager is content to maintain its position in the short-term as earnings growth in cyclical resource counters is expected to be driven by an improving outlook for the world economy.

The PSG Opportunities Fund is currently exposed to value stocks in the financial sector and on diverse opportunities in the Industrial sector. As a result, the fund underperformed its benchmark, as resources did well during the quarter.