The Investec Value Fund performed reasonably in September, achieving a return of +0.1% ahead of the -2.9% return of the JSE All Share Index (ALSI), and in line with the average value fund return of +0.15%. For the quarter ended September, the Investec Value Fund recorded a return of +10.4% ahead of the average value fund return of +9.3%. Year-to-date the fund has recorded a 14% return, which is 15% ahead of the ALSI.

Over the month we added to our holdings in ABSA, Reunert, Standard Bank, Investec, Truworths, Goldfields and Unitrans and added new positions in Iliad and Bridgestone. We lightened our Santam and M-Net/Supersport holdings.

The fund's broad positioning remains the same despite constant alterations to individual stock holdings - namely, we hold no resource stocks (with the exception of just over 4% in Goldfields as gold 'insurance') and continue to prefer the attractive valuations in the domestic banking and industrial space. The third quarter has been interesting in that it was characterised by resource stocks breaking away from negative effects of the rand's appreciation with the resource index rising 11% over the quarter. We believe that this is a result of the market correctly appreciating that the rand's strength has been mainly offset by higher US dollar commodity prices and expectations of still higher commodity prices as the global economy continues to improve. While the prospects for further commodity price increases look good, we continue to believe that this is more than discounted in the resource sector's PE of 17 times to December - a high rating in absolute terms and especially high when compared to the big three domestic bank's PE of just 7 and most industrial's PE's of around 8 times.

We continue to believe that the largest mispricing in the market remains the gap between the SA bond market (with yield down to 9%) and domestically listed industrial and financial equities (with dividend yield of around 5%). Domestic equities are fundamentally undervalued by as much as 30% against the current risk free rate.

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

The Investec Value Fund performed very strongly in June, recording a return of +5.5% which was well ahead of the JSE All Share Index return of -2.2% and the average value fund return of +2.3%. This return was sufficient to place the fund in the number one position in its sector.

For the quarter ended June, the fund recorded a return of +12.4% - ahead of the JSE All Share Index return of +9.7% and slightly ahead of the average value fund return of +12.2%. The Investec Value Fund remains the best performing value fund over all periods from 6 months up to 5 years. In the month of June, we were mainly buyers of shares as a result of inflows into the fund and continued good value to be had in the local market. Over the month we added new positions in Illovo, Glenrand, Naspers, Mr Price and Primedia and added to existing positions in AVI, Bidvest and ABSA. Holdings in AECI, Murray and Roberts and Argent were reduced over the month.

Looking forward, the overall positioning of the fund has not changed materially, despite the additions of new holdings over the month. The fund remains positioned in stocks exposed to "SA Incorporated" ie. shares that earn revenues and have costs in rands, and are mainly exposed to the SA economy. Within this category of stocks, we prefer stocks exposed to the consumer sector rather than those exposed to manufacturing, as the strong recovery in the rand is placing the manufacturing sector under pressure, while lower rates are assisting the consumer sector. The fund thus holds a 16% position in domestic retail banks and a 20% position in the retail sector, with the balance of the fund in domestic industrials. The current zero position in resource stocks will be maintained until the valuations accorded to these stocks more accurately reflects the earnings prospects of the sector with the rand below R8 to the US dollar (currently resource valuations appear to be discounting a rand closer to R9 to the US dollar).

The Investec Value Fund continued to perform well in March with the fund recording only a 4.4% decline in value in a very difficult market, which fell a substantial 7.4% over the month. This performance was sufficient to place the fund as the top performing value fund for the month. The Investec Value Fund outperformed the average value fund by 180 basis points in March. The fund remains the top performing value fund over all periods up to 5 years, and year-to-date the fund has outperformed the ALSI by 8.8%.

March was characterized by a number of switches within the fund with a portion of the ABSA holding switched into Standard Bank (which has underperformed ABSA over the last six months) and the small holdings in Mr Price and Foschini consolidated into the Truworths holding (all three retailers are trading on similar valuation multiples and we continue to believe that Truworths is the highest quality of the three). Holdings in AECI, Bidvest and Wetherly's were lightened and the entire Ozz and Trencor holdings were liquidated. Holdings in Reunert, Supergroup, African Bank and Tongaat were added to and a new small holding in Santam was established.

The fund remains focused on "SA Inc" stocks i.e. stocks that do not depend on a weak real rand exchange rate for profits and stocks that trade on low valuation multiples and are exposed to the domestic economy. Approximately 75% of the fund is invested in these stocks with domestic banking stocks (African Bank, Standard Bank and ABSA)
making up 15% of the fund now.

While we believe that further gains for the rand against the US$ are unlikely, we do not expect any substantial rand weakness. We believe that resource stocks remain priced for a weaker rand and we therefore continue to hold no resource counters.

The average PE of the fund (6,7 times) remains below the market PE with the fund's average dividend yield, now an especially attractive 5.1% with most stocks in the portfolio expected to grow their dividends over the next 12 months.

December marked the end of what has been a remarkable year for the Investec Value Fund. Before taking a look at what lies ahead, a brief look at the performance over the last two years. The Value Fund has recorded absolute returns of +121%, +39% and +12.6% over the last 2 years, 1 year and 4 th quarter respectively - figures that have enabled the fund to outperform the All Share Index by 99%, 47% and 14% over the three time periods. The fund remains the top performing value fund over all periods from 1 month to 3 years respectively, and for 2002 was the third best performing unit trust across all categories with only the unit trust industry's two gold funds outperforming it.

How has it been possible to beat the index by nearly 100% over the last 24 months? The answer lies in a great buying and selling opportunity over the last two years. The great buying opportunity was in small and mid-cap shares which was presented from the beginning of 2001 onwards. The great selling opportunity was in rand hedge shares (which happen to be mainly large capitalisation shares) from the beginning of 2002 onwards. The Investec Value Fund took advantage of the value in small and mid-caps with the entire fund being invested in this sector of the market in 2001 - a strategy which helped 2001's performance. While the fund underperformed the market over the period when the rand collapsed at the end of 2001, the view was taken that the rand's weakness was overdone and the strategy was maintained, thus enabling the fund to more than make up this lost ground in 2002 as the rand then surprised on the upside.

So much for the past. A more important discussion is the future, and more importantly for unit holders is whether the past two years' performance can be maintained.

The straight answer is that the relative outperformance of the fund against the market that has been seen over the last 24 months, will not be repeated in 2003. The reason being that the market inefficiencies that were prevelant in 2001 (namely irrational aversion to small and mid-cap shares) and 2002 (namely irrational obsession with rand hedge shares) are not to be found to the same extent in today's market.

The massive correction in the large-cap dual listed stocks over the last 6 months, and the relative outperformance of stocks exposed mainly to the strong local economy has narrowed the valuation gaps that existed. As a result, the range in PE's amongst the larger stocks in the market has narrowed from 5 to 15 times a year ago to 7 to 12 times, thus making excess returns more difficult to find. Nevertheless, as in all markets, we are finding stocks which we consider to be undervalued (which for the first time in 24 months includes large-cap shares such as Bidvest, Naspers, Sasol and ABSA) and we therefore expect to continue to outperform the market in 2003 but not to the same extent as 2002.