The rand was key last month. It lost 7.1% against the US dollar, 5.9% against the pound and 6.2% against the euro. Despite the currency weakness, Resources took a breather with lower commodity prices and returned 0.2%, whereas Financials added 4.3% and Industrials 4.2%. The Industrial Rand Hedges stood out and so did the Life Insurance sector.
Mastermind enjoyed excellent performance from MTN (up 10%), Gijima (up 14%), AGI (up 12%) and Alexander Forbes (up 13%). Telkom, Bell Equipment and JD Group were the largest detractors from the Fund's performance.

We sold our exposure to Delta this month and used the proceeds to increase our exposure to AGI and to reduce the underweight in Sasol. AGI has continued to deliver solid performance for our Fund. It has invested significantly in capital, re-engineered its business and looks on track to achieving target operating margins. It offers the Fund extremely attractive exposure to the highly-rated construction sector. We also exited Massmart and Tiger Wheels and invested the proceeds in Business Connextion, which has performed poorly against the market while awaiting Competition Board approval for its take-out by Telkom. We believe there is potential for Business Connection to trade closer to the Telkom offer price of R9.25, which represents a healthy 17% upside.

We're optimistic with the Fund's positioning and remain underweight Resources and Life Assurance, strongly favour Industrials and are guarded against a significant active position in Banks at this stage of the interest rate cycle. The Fund's characteristics are very appealing with a 26% PE relative discount, 17% Price:Book discount and 27% dividend yield premium.

We reported last month that the local market's volatility had increased dramatically. Well, not to be outdone, volatility in June exceeded that of May. The market was down almost 11% in the first two weeks before bouncing back to close 3% up for the month. Resources were once again the best performers, ending the month 10% up while industrials and financials lost 1%. The rand was also a feature of the month depreciating against the dollar by almost 7% from R6.70 to R7.15.

Following the strong outperformance of resources during the month (and for the year-to-date as well), we took the opportunity to reduce our resource holdings and increase select industrial weightings.

We sold our entire holdings in Implats (3%) and reduced our Anglos weighting by 2%. This 5% was spread evenly between Bell, Bidvest, Astral, JD Group and Mustek. Bell, Bidvest and Mustek provide good rand hedge qualities while Astral and JD Group are extremely attractive on PE discounts of over 40% to the market.

The best performers for the month were Amplats, Mittal, Bell and Delta. It was encouraging to see industrials like Bell and Delta (selected specifically to protect against a weaker rand) doing well. As would be expected, the month was torrid for rand and interest rate sensitive shares and our bank and retail holdings underperformed. In spite of this short-term underperformance, we believe that the valuations of these shares are attractive and warrant a holding in the Fund. Stocks such as Foschini and JD Group are on forward PE's of 8 times and dividend yields of over 5%. These ratings are similar to those that existed in 2003! Although we expect a further 50 to 100 basis points hike in interest rates, we believe that consumer spend will remain robust and that the market is being overly pessimistic on these shares.

We expect the market to remain volatile but take assurance in the fact that the Fund provides strong defensive qualities (22% PE discount, 16% price-to-book discount and 35% dividend yield premium to the market). The Fund faired well within the Value sector for the quarter.