This fund has done better than the Morgan Stanley Global Index over the past year. Despite rand strength, a holding in this fund showed a solid positive return over the year and provided investors with currency diversification, giving unit holders access to the euro.

Global equity markets proved to be remarkably resilient throughout the quarter, shrugging off some of the world's worst terrorist attacks and natural disasters. As we enter the new quarter, reality seems to be setting in. Global equity markets have corrected somewhat in the early weeks of the quarter as investors tempered their rather enthusiastic growth forecasts in the face of further rate hikes, particularly in the US.

While valuations in global equity markets are generally reasonable, a potential sell-off in global bonds remains a risk, and a further pull-back in equity prices may represent the opportunity to buy in at lower prices.

In recent months Europe has again underperformed the US equity market largely due to growth differentials between the economies. Unlike the US, Europe has not been a beneficiary of strong domestic demand and recent trends indicate no immediate improvement.

About 21 per cent of European companies' sales come from the US. Short-term gains by the dollar and the weakening of the euro due to the defeat of the European Union constitution in France and the Netherlands in the past quarter boosted revenue from the US and made exports more competitive.

Many Asian investors and oil-producing nations are considering the euro as diversification for their surpluses, while disappointment about the pace of the Asian currency devaluation could also boost the euro.

Domestic consumer demand remains weak, given the little incentive to spend in the light of continuing high unemployment, low wage growth and tepid household sentiment. At the same time businesses are faced with the combination of higher input prices and the ongoing uncertainties linked to currency movements. Currently European stocks are cheaper than US stocks with a trailing PE ratio of about 15X and trading on higher dividend yields. There is great momentum among the European corporations to restructure, which might give rise to the fulfilment of the saying "Out of difficult situations the best investment opportunities arise".

The UK equity market remains cause for concern given the inversion of the bond yield curve reflecting a tight monetary environment. We continue to see mixed reports from the housing market, although general consensus remains that property prices have fallen significantly, which will erode wealth effects and slow consumption. High energy prices will continue to favour the large multinational oil companies based in the UK, but the large services sector will continue to be pressurized by high interest rates, eroding wealth effects and falling consumer confidence. The earnings expectations for the UK region are widely dispersed, however consensus forecasts are 8% for 2005 and 5% for 2006. Recent appreciation in bond yields and equity prices has resulted in the UK market moving into slightly expensive territory.

It is likely that the Euro area will underperform other regions from a growth perspective in 2005 and will only be able to eke out around 2% growth for 2005. There are signs that improvements are underway in Europe, and the shift from exports to domestic consumption is encouraging, as it signals an improvement in domestic demand. Whilst an increase in rates is a possibility, the ECB will only be in a position to do so once the US Fed funds rate is at a level at which further euro appreciation is not a material threat. Europe is a good defensive play, given the undemanding valuations and good spread between cyclicals and defensives. In recently months Europe has significantly underperformed the US equity market largely due to the growth differentials between the two economies. Unlike the US, Europe has not been a beneficiary of strong domestic demand, although there are signs of a slow improvement.

Global equity markets, measured by the MSCI World Index, ended the year 2004 positively and delivered a return in excess of 12% in US dollar terms. The South African rand appreciated by 14% from R6.60 to R5.66 against the US$ and for the third year in a row diluted rand returns of international investments.

Most major countries and regions delivered positive returns over the year, with Korea and Brazil being the star performers with returns in excess of 25%. Europe performed well, mostly on the back of euro strength, and the FTSE, Dax (Germany) and CAC (France) generated returns in excess of 15%. Although still positive, the Japanese and US markets were the relative losers with returns of between 8% and 13%. Even with a strong fourth quarter, the technology-driven Nasdaq was a laggard in global terms. European sovereign bonds outperformed US and Japanese debt and this was driven by slow economic growth, limited inflation fears and a strong euro.

The dollar again lost against the euro and the yen mainly due to deficit concerns but also due to speculation that foreign demand for US assets is waning. Large European exporters are also taking strain from a stronger euro but recent oil price declines have offset some negative impact from the currency. Crude oil prices surged in 2004 to levels above $48 a barrel. In spite of these high prices, OPEC, which controls more than a third of world oil production, decided to cut output by more than 1 million barrels on 1 January 2005.

The UK economy has grown faster that that of the euro region for over 15 quarters. Economic growth topped 3% in 2004 and expectations for 2005 remain good albeit lower than the 2004 number. This will result in the 50 th consecutive growth quarter in the UK. The BoE raised interest rates over the past year to around 4.75%, but slower consumer spending and declining house prices will put a damper on UK growth and inflation prospects.

Euro land remains in a difficult position. The strong euro and the 30% rise in oil prices have left a mark on the economy and unemployment is running at a five-year high. French unemployment is around 9%-10% and job creation is not taking place due to lower global growth and lower export demand as a result of euro strength. The ECB forecasts 1.9% GDP growth for 2005. Some good news emerged as manufacturing growth accelerated in the last quarter.