The FTSE/JSE All Share Index recorded a positive total return of 20.3% for the third quarter of 2005, outperforming the mid-cap index (+18.6%) and performing in line with the small-cap index (+20.0%). For the year to date the All Share Index returned a very healthy 36.7%.

The sectors that contributed the most to this performance, were Oil and Gas, i.e. Sasol that was a beneficiary of the current high oil prices, Pharmaceuticals, i.e. Aspen that's riding the crest of the wave, and Construction, where the market is for the first time starting to recognise Government's intentions to spend billions over the next number of years on infrastructure improvements.

The biggest positive contributors to our portfolio were our overweight BDEO, Murray & Roberts and Imperial while our omission of shares like Altech and Discovery further enhanced our returns. Negative contributors were our zero weight in Sasol, which on a per-share basis was the single biggest contributor (negative) to performance. Despite this the fund experienced a relatively good quarter.

For the fourth quarter we continue to expect SA earnings growth to provide positive surprises, which should be a key driver of SA equity market outperformance. Market consensus is for SA earnings growth to moderate to 17% over the next year, compared with our forecast growth of plus 20%. We believe investors are discounting too much bad news in terms of loss of momentum in domestic earnings growth.

Based on relative value we continue to favour financials and industrials over resources. The market as a whole has however delivered a capital return of 130% over the past two and a half years and we believe the risk of a correction has increased. We would however view a correction as a good buying opportunity.

Sanlam General Equity's (SGE) returns over three and six months have blipped above its peer group's average. Welcome news for its investors, who have had to be content with below-par returns for longer than any care to recall. But is it sustainable? Only time will tell whether SGE's new manager, Omri Thomas, with his "pragmatic value style", can achieve what many before him have failed to do. For now, monitor it from a distance.

Financial Mail - 14 October 2005

Key features of the second quarter of 2005 were
o· the rand that weakened by 7% to R6.65 per $ at quarter-end;
o· the oil price that rose a further $10 to reach nearly $60 per barrel, and
o· a 7% rise in the SA equity market, reflecting mainly the effect of rand weakness. International equity markets were largely flat.

Against this backdrop, resource shares, particularly oil-related ones such as Sasol, were the star performers, while certain of the more rand-sensitive industrial shares like Richemont also showed good gains. Conversely, financial and retail shares gave back some of their large relative gains of the past few years.

Our investment philosophy, which is one of pragmatic value-oriented investing, steers us away from pursuing the momentum of the 'flavour of the month', and specifically we avoid buying into price spikes or bubbles as experience has all too often shown a very painful downside to this approach. Crude oil is a case in point and we decided to sell out of our Sasol holding during the quarter, preferring to concentrate our resources exposure in the diversified mining companies.

The portfolio continues to retain a large exposure to non-resource rand hedges such as Richemont and SAB, to diversified industrial companies such as Bidvest and Imperial, and to companies linked to local infrastructure spending and cellphone growth. These companies have good, predictable earnings growth and are generally undervalued.

The first quarter of this year was a carbon copy of the start to the first quarter 2004. Resources performed strongly on the back of sector rotation out of the financial and industrial sectors. This was also driven by strength in the prices of commodities such as iron ore and oil, with new record highs being achieved. Given our underweight resources, specifically Billiton, Sasol and Kumba, we were negatively impacted.

However, we remain of the view that it is very difficult to find value in the resources sector. The shares are trading at expensive ratings on record earnings. Current peak commodity price levels are therefore priced in, and no cycle is taken into account. This contrasts with the financial and industrial sectors where one can still find stocks trading at single-digit PE ratings in addition to having attractive dividend yields.

We expect to see some rand weakness as a result of the commodity cycle rolling over. On the back of this we've increased our exposure to non-resource rand hedges, the likes of Richemont, SAB and Imperial, and reduced exposure to SA consumption.

With the latest bout of negativity towards emerging markets, we are of the view that our market won't escape this entirely. Therefore we would start concentrating on companies with a more defensive nature and also those with high current and prospective dividend yields.

Sanlam General Equity Fund experienced a reasonable last quarter for the year ended December 2004. The performance for the year in total was at the mean of its peer group.

Reflecting back on the quarter and the calendar year, the highlights were as follows:

From a main sector perspective we were positioned optimally by being overweight industrials and financials and underweight resources. Industrial stock selections that added substantial value were our overweight positions in Naspers, ABSA, Standard Bank, JD Group and Bidvest. Strong underweight exposures that enhanced our performance even further were Harmony, Anglogold, Amplats and Billiton. On an asset allocation (timing) level we also added value, especially during the fourth quarter, by being fully invested for the entire period.

Unfortunately this was negated by some oversights in our portfolio, namely: Very low (underweight) exposure to retailers and small caps.

No exposure to some of the best-performing large caps, such as Iscor and PPC, and the premature selling of Edcon from the portfolio.

The main surprise of 2004 was the unrelenting strength of the rand, which in turn led to lower inflation, and the surprise interest rate cut in August. It fuelled a major consumer-spending boom reinforced by ballooning consumer borrowing.

Our view on 2005 is that it will be as challenging as ever. The commodity cycle appears to be at a peak, and there are clear signs, notably in the oil market, that the down leg is imminent. We also expect the rand to weaken over 2005 in line with a fall in commodity prices. While interest rates are likely to remain low in the near term, longer-term inflation concerns are likely to rise should the pace of consumer spending remain unchecked, and particularly if the rand weakens.

We continue to favour local stocks, especially non-resource beneficiaries of a weak rand.

Over the past 20 years many have tried in vain to set Sanlam's flagship General Equity Fund's performance on an even keel. Even current manager George Howard, despite his solid record, failed to make it in 2004 with his focus on big caps proving costly as smaller caps again produced the best returns. Howard says local non resource shares that will benefit from a weaker rand are now favoured in the fund, which still has a big-cap bias.

Financial Mail - 11 February 2005