Cash exposure continued to provide excellent diversification and defensive qualities to a portfolio of assets, as equities dropped a massive 16.3% during the quarter. By comparison the SteFI call rate yielded an attractive 3.3%for the quarter. The fund produced a return of 2.7% after costs and its underperformance can be attributed to being more heavily exposed to the short end of the curve.

The Fund is being restructured in April to give the manager more scope and flexibility to move across the entire money market curve. The fund will have a maximum average duration of 120 days as opposed to the current 90 days.

This will allow the fund to compete more effectively relative to the benchmark and peers and to benefit more from declining interest rates. Interest rates are expected to decline by 200bps in 2003 and a further 100bps in 2004.