Buys & Sells
We decided somewhat too early to switch from a defensive to a slightly more aggressive stance by exchanging Sanlam's Inflation Linked fund for its General Trust. We are confident that this switch will in the near future be justified. We also took some profits in Liberty Value.

Performance & Reason
The mediocre results should be seen against the background of historic lows in equity markets. Seldom, if ever, have we seen sentiment as bad as the present. The German Dax fell by 25% in one month (September.) This was countered by good results from Bonds, and funds such as Allan Gray and Old Mutual Mining.

Outlook
We are positive about the future, because shares are expected to bounce from these depressed levels, while SA bonds should also recover given the correction they have seen on the basis of inflation fears.

Investec Growth was switched to Investec Value because the fund managers see the latter fund performing better in this poor environment. The fund managers took some profits in Allan Gray and reduced the exposure to Liberty Wealthbuilder, all in favour of a new fund, Sanlam Inflation Liked.

The fund managers are working extra hard to improve this fund's returns vis-à-vis its peers. This effort, plus hopefully much better financial markets, is the case for now investing in this fund.

The Sanlam Managed Prudential Fund of Funds performed badly relative to its peers in 2000 and most of 2001. Poor fund selection was to blame, particularly an overstayed welcome in financial and technology funds in 2000. The new manager of the fund, Hendrik Pfaff, has assembled a portfolio containing well-balanced elements of value, growth and offshore exposure. Unlike many other FoF's, the Sanlam Managed Prudential Fund of funds is not restricted to in-house investment funds.

Relative to its peer group, this fund had a poor start to the year, because of our higher exposure to foreign assets. Thus Sanlam Global and Standard Bank European Growth detracted from our performance. The fund manager feels this is a temporary problem, and have consciously adopted a sizeable overseas position. The exposure to local financial shares was still a problem, but financials are now so cheap, that we are actually increasing our financial exposure even more. Coronation Top 20 remains a winner.

With the benefit of hindsight, the fund manager can say that at the start of the year he correctly sold some bonds and held it in cash, and reduced the foreign asset component, also in favour of SA cash. He, however, consciously decided to maintain a high foreign exposure, simply because the rand is a fundamentally weak currency. The fund manager is prepared to experience short-term pain in anticipation of long-term gain.

During the past month the fund exchanged Prudential Optimiser for Liberty Wealthbuilder because the fund manager sees Liberty as being better stock selectors. The fund also exchanged Sanlam Financial Fund, for Old Mutual Financials because the fund manager thinks financial shares are a good buy at these levels.

This fund is positioned for attractive, balanced returns over the next few quarters. The equity portion should benefit from renewed economic growth, while the bond assets are now much more attractively priced.