For the third consecutive quarter domestic equities were the place to be. The All Share Index returned 20.3% for the quarter compared to subdued returns from bonds (1.1%) and cash returns of 1.8%. For the year to date the ALSI has returned a very healthy 37%. Despite a strengthening rand over the quarter, the Resources sector was once again the main driver of the market return. Resources returned 25.5% for the quarter and are up 60% for the year to date on the back of continued strength in commodity prices and positive economic growth expectations. The CRB index (an indicator of broader commodity prices) reached a new high during the quarter. Financials and Industrials, while not as buoyant as Resources, also delivered strong positive returns for the quarter (13% and 20% respectively).

Domestic bonds had an uninspiring quarter, leaving the year-to-date performance of the All Bond Index in line with cash. The bond market retraced to weaker levels at first due to profit taking following the SARB's decision to leave interest rates unchanged at the August MPC meeting, and then in reaction to higher-than-expected inflation and monetary growth data. The yield on the R153 closed at 7.85%, 30 points higher than its level at the end of June this year.

The Sanlam Defensive FoF invests in a combination of leading positive return funds. Markets in general continue to be supportive of "absolute return" funds, with all major asset classes delivering positive returns in the third quarter and for the year to date. As equity markets reached new highs during the third quarter, the likelihood of a retreat has also increased. With capital preservation being a primary objective, the fund is defensively positioned due to the risk of a pull-back in markets. The fund continues to be comfortably ahead of its target of CPIX + 4% since its inception.

The fund maintains exposure to a diversified mix of absolute return managers, strategies and asset classes. It is ideal for investors seeking capital protection and inflation-beating returns over the long term, but who lack the knowledge, time and skill to select and monitor the various available absolute return funds, strategies and investment managers.

Domestic equities once again reigned supreme in the second quarter of 2005. The All Share Index returned 7.2% for the quarter compared to bonds, which returned 4.8% while cash returned 1.8%. This takes the return on the All Share Index to a healthy 13.6% for the first half of 2005. Resources have been the engine powering the ALSI on the back of a weaker rand exchange rate. The resources sector returned 27.5% for the year to date compared to 7% from the FINDI sector.

Domestic bonds had a much better second quarter after selling off in the first quarter of 2005. Bond yields fell during June mainly on a more negative outlook for world economic growth and lower international bond yields. Despite dollar oil prices reaching record highs, global bonds defied expectations and rallied in June as investors started pricing in a rising risk of a turnaround in global monetary tightening policy regimes.

The Sanlam Defensive FoF invests in a combination of leading positive-return funds. While the fund has a long-term focus it has performed well for both the second quarter and the year to date, comfortably delivering on its real return objective of CPIX + 4% (over rolling three-year periods) while at the same time protecting investors' capital in the shorter term. Investors should also note that the fund's volatility has been lower than that of the All Bond Index over the past 12 months. The fund continues to be defensively positioned as both equity and bond markets remain near all-time highs, increasing the risk of short-term capital loss.

The fund maintains exposure to a diversified mix of absolute return managers, strategies and asset classes. It is ideal for investors seeking capital protection and inflation-beating returns over the long term, but who lack the knowledge, time and skill to select and monitor the various available absolute return funds, strategies and investment managers.

During the first quarter of 2005 the All Share Index returned a very healthy 5.9%, driven primarily by the resources sector and other rand-hedge shares. The outperformance of these shares on the JSE was driven mainly by a stronger dollar as global investors continued their search for quality assets, which resulted in the rand weakening by more than 9% since the start of the year.

The weak rand and higher global oil prices ignited fears of an SA interest rate hike, contrary to the previously expected decrease. SA bonds performed well in January (1.5%) and February (2.0%), but reacted negatively in March in spite of very good inflation numbers. The yield on the R157 government bond retreated from its record lows of 7.65%, increasing to 8.53%. This saw bond yields increase across the board and the benchmark All Bond Index losing nearly 4% during March, giving back all the returns earned since the beginning of the year.

Since its inception in April 2004, the fund has performed comfortably ahead of its inflation target of CPIX + 4%. With equity and bond markets seeing record highs during the past few months, the risk of capital loss is increasing across markets in general. There is a strong emphasis on capital protection in the fund at the moment, while not losing sight of the longer-term goal of inflation-beating returns.

The fund is defensively positioned and maintains exposure to a diversified mix of absolute return managers, strategies and asset classes. The fund is ideal for investors seeking capital protection and inflation-beating returns over the long term, but who lack the knowledge, time and skill to select and monitor the various available absolute return funds, strategies and investment managers.

South African investors experienced another year of good and solid growth in investment markets. During 2004 the All Share Index reached a new all-time high, bond yields dropped to record levels (resulting in price appreciation) and the rand maintained its position as one of the strongest currencies in the world. All of this occurred on the back of very low interest rates and robust economic growth. Economically speaking this has surely been one of the best years in South Africa.

Supported by strong positive returns from all asset classes, it comes as no surprise that the Sanlam Defensive FoF has outperformed its CPIX + 4% target by more than 8% since its inception in April 2004. Absolute return managers in general performed well for the year, with most of the fund's underlying managers comfortably beating their inflation targets in 2004. Good manager selection was a key performance driver for the Defensive FoF.

The fund is well diversified across different asset classes as well as different absolute return strategies and managers. With the multitude of different absolute return managers and strategies available, this fund is an ideal solution for investors who do not fully understand the pros and cons of different strategies and want to invest in a diversified combination of absolute return managers.