The fund outperformed the Unit Trust Financial Benchmark during August 2002. According to the latest Micropal survey, released, the fund is positioned No. 1 on a 12-month performance review. Standard Bank announced interim EPS of 181c - much in line with forecasts. The fund manager's viewed the result as being of high quality with no growth benefit derived from taxation, credit provisions or translation gains. The share remains the funds top holding in the fund.

The fund underperformed the unit trust financial benchmark during July 2002. Banks contributed -35 bp to this underperformance, insurance +19bp and financial services -6bp. The fund's underweight position in cash resulted in -86bp while foreign financials contributed a further -29bp. Foreign banks weighed in with +21bp and foreign cash with +11bp. Among the worst performers were: FirstRand (-85bp) and Investec (-29bp).
July was a poor month for world markets and one, which was characterised by massive volatility. The Dow lost nearly 6%, the Nasdaq plummeted by nearly 11% and the S&P dropped 8%. European & Asian markets also fell precipitously. The JSE ALSI lost 13% in July with mining down a whopping 18% and banks off 10%. There were no major companies reporting during July.
There is little doubt that financials have experienced the contagion of the empowerment charter for SA's mining industry, with numerous foreign investors fearing that nationalisation of the banks might also be on government's agenda. If not nationalisation then increased pressure to make uneconomic housing loans to the undeveloped sector of the market. The erosion of investor sentiment in the wake of this leak is seen by many as almost irreversible in the short-to-medium term, especially since finalisation of the mining charter is only scheduled for the end of the year.
It is unlikely that SA markets will buck the trend of global exchanges. This suggests that continuing bearish sentiment will hold sway until more vigorous signs of US economic recovery emerge, or until geo-political concerns (invasion of Iraq, Arab/Israeli conflict, global terrorism) become less intense. On the domestic front, it would appear that retail interest rates have flattened out for the foreseeable future and that the next move in 2003 may well be down. The main kicker to bank earnings seems still to be in the guise of greater cost efficiencies and lower bad debt provisions, with little help by way of margin improvement or volume growth.

The fund had a very good performance during the quarter and outperformed the benchmark by 125 basis points (bp).
The fund's banking stocks had a sterling quarter, outperforming the benchmark by 137 bp, with overweight positions in BOE, FirstRand and Investec all contributing significantly to outperformance. An underweight position in Insurance stocks also helped performance. The fund had a significantly overweight position in Financial Services, which returned 24.5% against 19.8% for the Unit Trust Financial benchmark.
Unfortunately, with the strength of the rand during the quarter, the foreign equity holdings and foreign cash position (together about 18% of the fund) detracted significantly from performance. The fund would not be able to re-establish this foreign holding were the fund managers to unwind it in order to take advantage of current rand strength, supporting their view that short-term currency fluctuations should be ignored in the interests of longer-term performance.
Global investor sentiment remains shaky and the fund managers do not expect a turnaround in foreign equity markets in the short term. The fund managers continue to believe that rand stability will remain in force through at least the third quarter but that a weaker currency trend could well resume towards year-end. Accordingly the fund managers will maintain the fund's large foreign equity and currency exposure which was largely switched to euro, sterling and Swiss franc out of US dollars during the quarter.

The fund's performance during April 2002 was only 25 basis points better than that of the unit trust financial benchmark. Financials experienced a surge during the month, returning nearly 16% as investors began switching out of Resources as the Rand gained upward momentum.
The equity content of the portfolio returned a positive 23.8% against 20.7% for the benchmark. Banks returned 27.2% vs 23.9% for the benchmark, Insurers 23.2% (vs 17.4%) and Financial Services slightly underperformed, returning 16.1% (vs 17.1%). The biggest negative contributor towards performance was the fund's sizable holding in US Dollars (negative 154 basis points), while foreign share holdings also contributed negatively, notably US-based Metlife (negative 93 basis points).
On the positive side, the fund's overweight position in ABIL finally came to the party, contributing 36 basis points. The fund missed the ABSA run which hurt the fund to the tune of negative 42 basis points, although the overweight holding in BOE contributed 91 basis points. The fund was underweight Nedcor, which resulted in negative 45 basis points. Among insurers, Sanlam boosted performance by 75 basis points. The one major surprise was Alexander Forbes' negative contribution of 20 basis points.
Clearly the strengthening Rand is proving to have a major impact on Financials and is expected to prevail over the next six months or so. Evidence that economic growth is perhaps stronger than originally expected is also positive news. Foreign investors seem to have regained their confidence in Non-Resource stocks.

Trading within the FT NIB Selected Financial Opportunities Fund took place throughout the quarter, as they struggled to claw back performance in the face of the widespread investor sell-off of financial shares. In order to meet investor withdrawals a lot of selling during the quarter was forced by the need to generate more cash. The performance of the fund on a short-term measure has been rather mixed, although it continues to retain top spot on a twelve month basis.