The fund finally benefited a little from some rand depreciation during the quarter to achieve a positive rand return. US interest rates are continuing to rise, albeit VERY slowly, having gone from an official rate of 1% to 1.75% so far in 2004, so investors can look forward to a small increase in interest generated by the money market instruments held in the fund. However, rates remain very low and money market funds are paying only 0.5% annually at this stage. Inflation in the US continues to impress on the low side. So the main reason for investing in this fund is to benefit somewhere along the line from rand depreciation. Eventually patient investors may be rewarded as it looks increasingly as if the rand's almost 3 year bull run is drawing to a close. Of course all that has happened is that the rand has bounced back strongly after falling for many many years and in fact it remains some 85% below its exchange rate level to the dollar of 22 years ago. The other point worth noting is that while there is a loud chorus out there around the globe calling for the imminent demise of the once mighty dollar because of the twin deficits et al, this is by no means assured at this point in time. Yes, the dollar has fallen sharply over the past 3 years against the euro and pound, but it is just possible that the dollar may surprise the doomsayers and appreciate against these currencies over the next 6-12 months. Of course who knows for sure. Even the wise old owl, Alan Greenspan, stated that in attempting to call currencies one might as well spin a coin! However, all we're saying is be underweight the dollar at your peril. After all, with regard to the huge current account deficit, 60% of this deficit is with Asia - and as long as Asia continues to invest its surplus cash in the US, there is no reason why the dollar should depreciate much from here. China is the biggest one and they have pegged their currency to the dollar anyway. The US current account deficit with the rest of the world is a normal 2.2%, in line with the historic average.

Once again rand exchange rate movements over the quarter have dominated returns for investors in the fund, again negatively (for the last time, one may ask, with some backing, ie validity?).
The rand gained some 4.8% against the dollar during the quarter, leading to the negative return for the fund of -3.9%. Over the year the rand gained 20.1% against the dollar and the fund accordingly had a return of -19.62%.
The fund pays virtually no interest because US interest rates remain at 45 year lows, with the official US rate (the Discount rate) at 1%.
The US Dollar had previously lost some 50% of its value relative to the Euro over the past 2 years, but has bounced back sharply over the past 6 weeks (to 15th April 2004), gaining some 8% from its low of $1.293 to the euro to around $1.19 to the euro. This comes on the back of stronger-than-expected economic growth and employment numbers in the US of late. Stronger employment numbers imply that interest rates may have to be raised in the US sooner than expected, which could be supportive of the dollar as depositors would earn more interest if that happened. Inflation has also been rising a bit, leading to the same conclusion.

Due to the STANLIB amalgamation (27 Feb 2004), Standard Bank US Dollar Cash Fund of Funds will be renamed to the STANLIB US Dollar Cash Fund of Funds.

The continued rise of the rand to the dollar (3.7% during the quarter) was again the dominating force in causing a negative rand return during the quarter, because the actual income yield of the fund is virtually zero (with interest rates in the US at 45 year lows).
This theme has dominated the fund's rand performance for the past two years, as the rand gained 39.6% in 2002 and a further 28% in 2003 and in fact was the top performing currency in the world over the two year period, whereas the dollar was one of the worst performing currencies.
The beginning of 2004 has seen a sharp reversal in the rand's exchange rate versus the dollar and it is just possible that the trend of rand strength has turned. Clearly this would be good for the beleaguered investors in the fund. It is unlikely that there will be any noticeable income return for some time as no increase in interest rates in the US is expected until the second half of 2004 and then only by a smallish amount, maybe 1%. So returns will continue to be dominated by the currency exchange rates for the foreseeable future.
The dollar itself has lost ground sharply against the euro and sterling and may now be due for a period of mild strength in the next few months. However, the dollar is expected to be weaker against both currencies by the end of 2004.