Apart from approximately 13% held in cash, the fund is fully invested in the Fidelity International Fund offshore. This fund has tended to outperform its benchmark and most competitors in upmarkets and underperform in downmarkets. This feature of the fund is prevalent in the statistics that indicate that the fund is 32% more volatile than its benchmark and has a 13% higher risk (beta) than its benchmark. This in turn means that it should be a good performer when the markets finally turn upwards. Investors who have endured the pain and suffering of the past two and a half years of bear market may by now have seen the worst and should probably wait for the upturn.

The fund has 5 different regional portfolio managers;4 of these managers have performed relatively well (those in London, Hong Kong, Tokyo and Toronto)while the US fund manager has underperformed. Because this latter manager has over 50%of the assets of the fund, this underperformance has caused the fund as a whole to underperform its benchmark. The US fund manager has remained overweight in the growth shares in the States, which have continued to struggle performance-wise. Investors should, however, note that value shares are now at historic highs relative to growth shares. Considering that markets have a tendency to mean reversion, meaning that there is a tendency for a market (or sector or style) that has moved to one extreme to eventually return to its mean or average trend, then there is a strong likelihood for growth shares to begin outperforming value shares in the near future.

An improving economic environment is one that should benefit equities. Unfortunately a series of revelations about overstated profits and revenues at some of the largest US firms, such as Enron and WorldCom, leave question marks about the true health of corporate America. This resulted in US equities posting their steepest first-half decline in more than three decades, and the dollar suffering it 's biggest quarterly drop in 14 years! To gain some perspective on the first six months of 2002,one notes that the MSCI World Index has fallen 9.5%in US Dollars and 24%in Rands. The S&P 500 Index has fallen 40%in Rands from January to 11th July and the NASDAQ Index has fallen 52%over the same period, while the top 50 shares in Europe have fallen by 41.6%.

Over the quarter the MSCI fell by 9.67%. The dollar fell by 8.9%against the rand resulting in the above-mentioned index declining by 17.28%in rands, while the fund ended the quarter down 22.46%. The weak equity market has probably made this the worst six months in the fund 's history. The underlying Fidelity International Fund was underweight in Germany during the period and overweight in Japan and Italy. Financials were the biggest overweight from an industry point of view and Industrials the biggest underweight. All other holdings were close to the index. The biggest holding in the fund remains Teradyne which is a rapidly expanding business and is the market leader in the production of specialist semiconductor test equipment.

In dollar terms the MSCI World Index ended the quarter flat, advancing a mere 0.01%. The rand however was relatively strong as it strengthened 5.40% against the dollar, resulting in the index losing 4.92% in rand terms. The euro and sterling lost 2.11% and 2.03% respectively against the dollar as it benefited from positive economic data releases such as lower unemployment, as well as increases in consumer confidence and manufacturing. Regionally Indonesia and South Korea were the best performing markets up 35.88% and 28.72% respectively - in dollars! Germany 's Xetra Dax was up 2.04%, while the S&P 500 and FTSE 100 lost 0.06% and 0.88% respectively. The Nikkei slumped to an 18 year low in February but rebounded by more than 26% to end the quarter up 1.14%.

Fund Performance
The fund outperformed its benchmark, but declined in rand terms due to the strengthening currency. Regionally South East Asia was the best performing component of the fund. The largest holding in the portfolio was Teradyne, which rose 30.80%over the quarter.


Fund Positioning
The fund is biased towards growth companies, as opposed to value companies, especially in its US portfolio, which comprised 57.5% of the total portfolio at the end of January. It is also biased towards economically sensitive companies, which should experience nice improvements in earnings in 2002/2003 over the previous year. It is overweight smaller and medium sized companies relative to its benchmark. For example, 80% of the benchmark is invested in companies with a value (market capitalization)of more than $10 billion, whereas the fund has 56% invested in such companies. The fund has over 20%invested in companies valued between $1 billion and $5 billion relative to the 7%of the benchmark. The reason is that Fidelity believe that most competitors focus on the large companies, whereas because of the depth and breadth of their research, Fidelity 's analysts can and do find opportunities in segments of the market that are less frequently analysed.

The fund 's biggest underweight region at the end of January was Europe (17.7% versus 19.4% for the benchmark) whereas Japan was the biggest overweight (10.2% versus 8%). From a sector point of view the fund was overweight Information Technology (16.8% versus 14.1%) and underweight telecommunication services (5.4% versus 6.3%). Combined this represents an overweight (22.2% versus 20.4%). The single biggest overweight sector bet in the fund is the Energy sector (11.6% versus 6.7%).