The Standard Bank Extra Income Fund was the best performing income fund over a one year period, returning 10.5%for the year. The size of the fund stood at R552million at quarter end.

The duration of the fund was kept short at 249 days in anticipation of short term interest rates being increased at the September MPC meeting. The risks for interest rates remain on the upside, with continued higher food and oil prices putting pressure on inflation. Expected CPIX for 2003 as well as 2004 is expected to be above the inflation target ranges. Money market rates continued to rise over the past few weeks, largely due to the SARB draining liquidity from the market. The risks for the rand remain high as global growth is slowing and foreign sales of securities increasing, in the absence of capital inflows.

We will be looking to increase duration of the fund as the interest rate cycle nears its peak.

The Standard Bank Extra Income Fund was the second best performing income fund over a one year period, returning 10.67%for the year. The size of the fund stood at R 548 million at quarter end.

The duration of the fund was kept short at 287 days in anticipation of short term interest rates being increased at the June MPC meeting. The money market curve flattened during the quarter and some investments were made in the 12-month area to lock in performance as the cycle neared its peak.

Inflation is expected to peak at the end of the third quarter. The MPC is expected to maintain their hawkish tone through the wage negotiations and interest rate risk, remain on the upside. The fund managers will therefore remain cautious and keep duration short of the index.

The SARB surprised the market by hiking short-term interest rates by 100 basis points on the 15th of January. This can be seen as an attempt to bolster their credibility and demonstrate their commitment to the inflation target. The inflationary effects are cost-push rather than demand-pull and higher interest rates will have little impact on inflation. The aggressive nature of the move indicates a more hawkish approach by the SARB and points to tighter monetary policy. This was confirmed by a further 100 basis points in March, and the risk of higher short term interest rates remains on the upside, as inflation is expected to only peak later in the year.

The fund managers will therefore keep the duration on the funds short of benchmark to benefit from any further increases in short term interest rates.

The SARB surprised the market by hiking short term interest rates by 100 basis points on the 15th of January. This can be seen as an attempt to bolster their credibility and demonstrate their commitment to the inflation target. The inflationary effects are cost-push rather than demand-pull and higher interest rates will have little impact on inflation. The aggressive nature of the move indicates a more hawkish approach by the SARB and points to tighter monetary policy. This was confirmed by a further 100 basis points in March,and the risk of higher short term interest rates remains on the upside,as inflation is expected to only peak later in the year.

The fund manager will therefore keep the duration on the funds short of benchmark to benefit from any further increases in short term interest rates.