The US Federal Reserve Board lowered its official interest rates recently by yet another 25 basis points (0.25%) to a new 45 year low of just 1%, causing all money market funds to lose another 0.25% of yield to investors.

This means that many investors in such funds (retail funds) could actually be losing money in dollars, albeit very slowly, because the income of the fund may be insufficient to cover the expenses of the fund.

As it was, the fund lost money in rand terms because of the continued appreciation of the rand versus the dollar during the quarter, adding to a similar move in the first quarter (rand up 13.5% in first half versus dollar) and a major move in 2002 (rand up 27.4% over past 12 months versus dollar).

The one positive of late is that the dollar has appreciated by almost 7% against the euro over the past couple of months and also against sterling, although by a lesser amount. The STANLIB house view is that the dollar will depreciate by a small amount to end the year at 1.14 dollars to the euro (currently 1.12).

With the US dollar continuing to be one of the weakest currencies in the world, the fund has struggled. The dollar lost a further 8.9% against the rand during the quarter, adding to the 39.6% loss incurred during 2002.

This big currency movement vastly outweights the paltry 0.15% net dollar yield (interest) earned by the fund from its money market instruments.

The extent of the dollar 's loss against the rand in the past year is reflected in the 27.7% unit price loss of the fund in the year to end March.