The Fund was actively managed around the benchmark during the past quarter. The duration of the Fund was kept relatively short as the short end of the market offered the best value.

At the April MPC meeting interest rates were unexpectedly cut by 50 basis points. The meeting opted to increase their focus on the uncompetitiveness of the Rand strength and the impact of this on the agricultural and manufacturing sector, while inflation remained well under control. Subsequent to the interest rate cut the market discounted further cuts and the long end of the money market curve compressed by 60 basis points versus the short end that came down by only 30 basis points. During the latter part of the quarter the stronger USDollar against major currencies put the Rand under pressure. Higher oil prices stemmed the bullishness in the money market and the long end of the market retraced to the 7.1% level.

Going forward, until local fundamentals such as M3 and PSCE and the Rand oil price become inflationary, interest rates should remain sideways. Currently the short end of the market is offering better value than the long end and the portfolio will be managed with a short duration, unless better value is offered at the long end.

The size of the Fund remained relatively unchanged from the previous quarter. The duration of the Fund was kept relatively short due to the uncertainty that was seen in the market, the relatively high rates at the short end of the market offered good value and therefore, there was no additional need to take on duration risk.

The yield curve steepened during the quarter under review. During the previous quarter the market expected a rate cut at the February MPC meeting and when that did not materialise expectations of a further rate cut was moved to the April meeting. With the Rand weakening from R5.61 to R6.23 to the US $ and the oil price moving up by $10 per barrel the sentiment in the market changed to more cautious as a result of possible inflationary fears during the course of the year. Short rates remained relatively unchanged, but the rates at the longer end moved up by as much as 35 basis points. This was in line with the bond market that moved up, following the US markets. Emerging markets also came under pressure in the latter part of the quarter as rates in the US increased.

Our view is that the Money Market will move sideways for the largest part for the remainder of the year and the duration of the portfolio will be managed accordingly.

Duration: 124 days

The size of the Fund remained relatively unchanged at R710m from the previous quarter.

Interest rates remained relatively stable over the last quarter. The yield curve, however flattened in anticipation of further rate cuts as the Rand remained strong and ended the year at R5.64 to the US Dollar.

The MPC decided to leave rates unchanged at the MPC meeting early in December due to concerns on credit extension over the festive season.

The Rand, oil prices, inflation and the level of private credit growth will determine the direction of interest rates. The bullish momentum in the market seems to have slowed down and we anticipate a flat interest rate scenario going forward. We, therefore kept the duration of the fund short of the index to benefit from the higher rates being offered at the short end of the curve without having to take on duration risk.