Both equity and bond markets experienced a strong quarter on the back of an unexpected interest rate cut by the SARB. Inflation as measured by CPIX ticked down, with the year-on-year figure coming in at 3.7% at the end of August. Underlying absolute return managers benefited from the favourable market conditions and most finished the quarter comfortably ahead of inflation targets.

The Fund experienced a strong quarter and market strength was used to lock in some of the gains. The direct cash holding was increased at the expense of the slightly more aggressive positive return funds.

Strength in the equity and bond markets helped the Fund to deliver three positive monthly returns over the quarter and comfortably beat its inflation target of CPIX + 5%. Relative to its peer group the Fund finished in the top half for the quarter.

The third quarter proved to be a very good quarter for investors in the SA equity and bond markets. The surprise interest rate cut in August helped the ALSI to a positive return of 2.2% for the month. This good start to the quarter was followed by two very strong months of 8.8% and 5.7% in August and September respectively. For the year to date, the ALSI is up by 16%. Resources have been the laggard of the three major sectors and returned only 6.7% compared to the very good 20.2% and 27.5% of the industrial and financial sector respectively.

Bonds also did well during the quarter as investors priced in the favourable interest rate environment. After the during which bonds did not perform very well, the third quarter saw bonds returning 6.9% over the three months. The total return on the All Bond Index for the year up to the end of September is now 7%.

For the first time this year, investors have done better from bonds than from cash instruments. Inflation (y-o-y CPIX) is closer to the bottom end of the SARB target range of (3% - 6%) and is expected to finish within the range at the end of the year.

There were some small changes to the fund structure during the quarter. The fund reduced its holding in Allan Gray Optimal by 5%, which led to a temporary increase in the cash position. This cash will be invested with other managers during July. The fund's exposure to Peregrine Positive Return was also slightly increased during the quarter.

The fund was reclassified as an Absolute Return fund during the course of the quarter and the peer group category has subsequently become the ACI Domestic AA Targeted Absolute Return Category. While the short-term return is below its inflation target, the fund still managed to deliver positive returns in the face of tough market conditions with the All Share Index down 2.7% in June.

The rand strength during the quarter had a negative impact on performance through the fund's small foreign holding. The underlying positive return managers also struggled to meet their inflation targets during the second quarter and this also impacted fund performance.

June was another negative month for the All Share Index. The 2.7% decline during June, together with the 2.4% decline during April, resulted in the index also ending the quarter down by more than 4.5%. The All Share has now declined by more than 1% for the year to date.

Currency movements during the quarter were extremely volatile. During April the rand depreciated by more than 9% against the US dollar. However, during May and June it bounced back with performances of 6.9% and 4.6% respectively. The result is that the currency has appreciated against the dollar since the start of the year (7.4%). This makes the rand one of the strongest currencies in the world - year to date.

The SA bond market has been a poor performer since the start of the year. A higher than expected oil price fuelled expectations of an interest rate hike during the second half of 2004. This resulted in bond yields kicking up from their lows.

Inflation fears were reduced during the quarter, primarily due to the very strong rand. The positive performance from bonds during the recent quarter (0.4%) helped the year-to-date return into positive territory. However, compared to cash, bonds have still underperformed as cash is up by 4% for the year to date.

This fund is managed on an absolute return basis with the objective of providing positive returns over rolling 12-month periods as well as returns in excess of CPIX + 4% over rolling 36 months.

This fund provides investors with exposure to some of the leading absolute return managers in South Africa. The manager diversification should also help the fund potentially to have a lower volatility than similarly mandated single-manager funds.

During March, the SA equity market declined by more than 1% while SA bonds also declined in value. Despite the negative returns from the indices, the fund performed reasonably well and ended the month approximately flat. This could be ascribed to good performances by Allan Gray Optimal Fund as well as Sanlam Inflation Linked Fund.

The Sanlam Global Equity Fund declined in value on the back of the strong rand and detracted from the performance of this fund during March. Periods of currency weakness and foreign market strength have been used to reduce the exposure to the Sanlam Global Equity Fund.

This fund also provides manager diversification which should help the portfolio to have a lower volatility than similar mandated single - manager portfolios.

The local equity market was marginally up in February returning 0.48%. The All bond Index was up 0.91% on the back of the rand appreciating by 5.3% against the US dollar. While the strong rand was positive for bonds, international equity returns in rand terms were negative, with the MSCI Global Equity Index -3.7% down in rand terms for February.

The fund was marginally down for February returning -0.46%. International equity exposure was the primary detractor from value, while positions in Sanlam Inflation Linked Fund and bonds added value for the month.

The fund is now fully managed on an absolute return basis and the objective is to deliver positive returns over any rolling 12-month period.

The diversified nature of the fund and its large holding in cash and fixed-interest securities will result in lower volatility of returns than will be found in a pure equity fund.

Effective from 1 Apr 04, the Sanlam Worldwide Fund of Funds changed its name to the Sanlam Defensive Fund of Funds.

The South African Equity market finished 2003 on a high note, driven by improved global economic conditions and by a weaker rand. Bond yields kicked higher and the R153 ended 2003 at just over 9%.

The rand depreciated against the US dollar in December, resulting in positive rand returns for the foreign investments in the portfolio. The Fund is now fully managed on an absolute return basis and the objective is to deliver positive returns over any rolling 12-month period.

The diversified nature of the Fund and its large holding in cash and fixed interest securities will result in lower volatility of returns than that found in a pure equity fund.