Managed prudential funds provide a shop window into a fund management house's best investment view. If these funds perform badly, the performance of the firm's pension fund portfolios is also likely to be poor, and the recovery in a managed prudential fund should also indicate a revival in the house as a whole.

The revival of the Sanlam Provider Trust indicates Sanlam's house view is on the mend. Over one year, Provider is second to Allan Gray Balanced in the medium equity prudential category, where most house view portfolios sit.

Fund manager Steve Mills says in broad terms Provider reflects the house view, which is positive on SA equities, as it expects SA to benefit from the stronger global economic cycle. Sanlam does not expect a current account deficit, which should stimulate economic growth, to become a concern. Because Provider is a small fund with R100m under management, Mills has a lot more flexibility than the R180bn-plus Sanlam manages in its institutional portfolios.

In international assets, while the house maintains an asset allocation of two-thirds equities and one-third fixed interest, Mills has no international equities and recently switched from global bonds into global cash. He prefers to get international equity exposure through the dual-listed shares, which he understands better than completely foreign equities.

Mills has also exited from shares such as Alexander Forbes and Richemont, which have been hit by the strong rand. But he says Sanlam's institutional funds, with a longer-term perspective, are "soldiering on" with these shares. Mills has been adding to domestic defensive shares such as Tiger Brands, Bearing Man, Foschini and Mustek. He says he made a mistake by selling down his property exposure from 9% at the beginning of the year to a residual 1,5% in Acucap.

He has avoided long bonds, focusing on the medium duration R153, as he says long bonds could become volatile if the Reserve Bank cuts short-term rates too aggressively.

Buys & Sells:
No major purchases or sales took place during October.

Performance & Reason
The fund had a positive month returning in October. The main reason for the fund's performance came from having at least a neutral position in resources as that sector had a very strong month returning. The area that detracted the most value from the performance was been slightly underweight IT which had a positive return. The fund is well exposed to the mid-cap area which continues to benefit from the positive domestic fundamentals. Bonds delivered a modest for the month so the fund benefited from being overweight equities and underweight bonds.

What influenced the performance of the fund?
The fund continued its excellent year to date performance during the third quarter on the back of value added by asset allocation decisions and solid stock picking. The move out of nominal bonds during the beginning of the quarter worked well as to did the re-entry towards the end of the quarter. The funds overweight to equities has also added value over the quarter.

Outlook
We remain confident on the domestic equity markets, but are watching the currency closely. With inflation under control, it appears the interest rates are likely to continue to come down over the next 3 months, giving nominal bond yields the opportunity to move down further. We expect the fund to continue its excellent performance both on a relative and absolute basis

Perfomance & Reason
In June, the main reason for the fund's relative performance came from being overweight in the financial sector, which outperformed the rest of the market. Another positive driver of the fund's relative performance was the underweight in resources, which returned a negative -6.3%. The All Share Index was down -2.22%. The All Bond Index was up 2.39% giving a respectable 11.8% year-to-date return. This can be contrasted with the All Share Index, which on an equivalent year-to-date basis has returned -8.2%.

Outlook
The month of June produced virtually the mirror image with regard to equity sector performance, with only the bonds being consistently positive. The reversal in fortunes was again rand driven with our currency appreciating by 7.3% against the US$.

The fund's positioning is likely to be more of the same, i.e. underweight in resources while going the opposite in domestic sectors, including financials. At an asset allocation level, we are likely to remain overweight in equities, but we are becoming increasingly concerned about the level of global and domestic bonds and are likely to move to an underweight position in domestic bonds. International assets should stay in cash in the meantime, as the global equity markets are looking stretched at the moment.

In March, the main reason for the fund's solid relative performance again came from being overweight the quoted property sector which returned a healthy 2.4%. This can be contrasted with the All Share Index which was down a huge -7.9% while the All Bond Index was up 0.9%. The main contributor to the poor month's performance of equities came from the life insurance sector (-10.0%) and heavyweight shares such as Richemont and Sappi which both fell by -19.0% and -17.8% respectively. Note that the decline in Richemont for the quarter has been a staggering -34.0%.

Outlook
Now that there is more certainty about the end to the Gulf war the markets are likely to focus on the economic fundamentals. The outlook for the rand is now dominating the local market's thinking at present. A 12 month view that is much stronger than consensus (approximately R9.25/$) will be detrimental for rand hedges and positive for bonds. The converse is also true if the rand is going to turn out to be much weaker than consensus. The fundamental outlook for the global economies' over the second half of the year will be largely driven by how the USA responds to the stimulatory packages that the authorities have been aggressively pushing.

The fund's positioning is likely to more of the same; i.e. neutral to underweight to resources while going the opposite in domestic sectors, which includes financials. At an asset allocation level, we are likely to remain overweight equities including quoted property while being neutral bonds. International should stay in cash for the meantime.

However, on a 12-month view these positions will have to be seriously challenged, as the probability that the rand will weaken coupled with a resumption of accelerating global growth is likely to increase.

In December, the main reason for the fund's solid relative performance came from being overweight the gold sector and domestic bonds. The gold index increased by 20.8% and the All Bond Index by .81% in December. The All Share Index was down -2.85% led by Financials and Industrials which were down -7.7% and -5.3% respectively. Resources increased by 0.5% for the month of December.

In the short term (next quarter) the outlook is likely to be more of the same; i.e. neutral to underweight in resources while going the opposite in domestic sectors, which includes financials. At an asset allocation level, we are likely to remain overweight equity including quoted property while being neutral to bonds. International should stay underweight. However, on a 12-month view these positions will have to be seriously challenged, as the probability that the rand will weaken coupled with a resumption of accelerating global growth is likely to increase.

Buys & Sells:
No major purchases or sales of equities occurred during the month of November.

Performance & Reason
The fund had a good November in absolute terms. However, in relative terms it had a disappointing month. The main reason for the fund's poor relative performance came from being overweight the gold sector. The gold index declined by -10.2% in November. The All Share Index was up 2.15% led by Financials and Industrials, which were up 7.7% and 5.1% respectively. Resources declined by -2.43% for the month of November.

Outlook
Following the strength of the rand and the brighter international outlook, the temptation is naturally to upgrade equities over bonds and global cyclicals, such as Resources over domestic Financials and Industrials.

However, in the short term we believe that the rand should average R9/1US$ for the next quarter we are maintaining an overweight in Financials and local Industrials and an underweight in Resources for the short term.