We have been somewhat surprised by the extent to which the global markets have priced out risk. The NASDAQ is reaching new highs. Initial Public Offerings are occurring where people are buying on 3 or 4 times sales, no profits. Nigerian sovereign bonds are trading 4% higher than US Treasuries, down from some 20% nine months ago! Locally, people are paying over 30 times for luxury goods earnings through Richemont, and paying up handsomely for a weak rand view in Resource shares.

Where does this leave us? The funds' six-month return is up some 16%, and the one-year return over 10%. The fund continues to be positioned away from undiscounted risk and positively towards untaxed yield and visibility of dividend growth. With hindsight, we should have had a higher bond exposure, but we see little scope for good money to be made at sub-9% yields. Over the past quarter, Property Unit Trust's underperformed bonds by over 4%, restoring good relative value to the sector. We foresee some outperformance from here.

We are a bit perturbed by the continued strength of the currency, and the impact it has on manufacturing and job creation. It is clear that the SA economy will not create jobs (at best) and quite possibly, shed all the jobs that were created last year. Most of those jobs were for semi- skilled and temporary labour, and the direct effect on some local industrials is problematic. We are avoiding basic manufacturing and lower-end consumer shares, as we worry about profitability and spending power. Our portfolio remains focused on middle and upper income consumer shares (Pick 'n Pay, ABI, Afrox) and Resource shares where rand weakness is not fully discounted (Sasol) and strong global franchises (SABMiller).

Investec launched a new B class (retail) on this fund on 1 October 2003.

The fund gained 1.5% for the month, notwithstanding the weak equity market (-2.2% return), representing a far more sustainable performance after May's very strong run. This strong performance came from the domestic shares continuing to rally in the wake of a strong rand. The anticipated interest rate cut provided a welcome boost to the market in general.

We are somewhat sceptical of the continued strong rally in US equities that we have seen since the end of the Iraq war, which now has been relegated to history with not much discussion since. We do not believe a new bull market has commenced, although technically that market could go higher. We think the risks are on the downside, especially given the retracement we have seen in US bond yields.

Given our expectations for further upside in global bond yields, and the too low expectation of 5% sustainable inflation in SA already priced into SA bonds, the local market looks extended. We remain comfortable not owning SA bonds.

Outstanding value is becoming harder to find even in the domestic market, suggesting that a more defensive stance is becoming warranted and we are especially concerned about Resource share earnings, given the Sasol, Amplats and Sappi profit warnings. We have very little by way of exposure here.

We took the foreign component away this month, given the retracement in the rand. We continue to hold Euro and gold as our preferred currencies over the US dollar.

The fund continues to be positioned for a lower S&P 500, stable rand and further interest rate relief.

Equity markets continued their sell-off, increasing the forward looking returns from shares whose business models are not directly dependent on the movement of the currency. The local market declined some 9% in March, making it four negative months in a row. The Investec Opportunity Fund managed a -4.6% return for the month. The fund is still positive over a 12-month period. It is important not to become short-term obsessed.

The most appropriate strategy at the moment is to continue to avoid the shares with negative operating momentum, such as Resource and Industrial export shares. The fund remains focussed on companies that have a combination of deep value, positive earnings growth and high initial dividends. It is becoming easier to find superb businesses at very low ratings. The key is to buy into these, and discard the cheaper but more mediocre companies with similar levels of expected returns.

The fund will perform well prospectively, as soon as domestic interest rates commence their long expected downward trend, even if globalconflict and weak international economic conditions persist. The local consumer shares are discounting the low levels of pricing power implied by the bond markets expectations for interest rates, but not the higher valuations that can be placed on the cash flows. In many cases (like ABI, Pick & Pay and Nampak) the initial dividend yield already provides the return on expected inflation, with substantial upside if the earnings grow as anticipated.

The strategic landscape for investments remains very challenging, but one should be cognisant of the fact that even if the current decade is dominated by geo-political terror, like the 1970's, investment returns can still be quite rewarding. We will continue to seek and select companies that can grow in very difficult environments.