When looking through the various equity funds, it is surprising to see how many hold large numbers of counters, some in excess of 60. By contrast, the Coronation High Growth Fund holds half this number. And if one looks a little further, one can see that 22 of these stocks make up 88% of the fund. Since adopting a more focused approach to the management of the fund, the returns have been greatly enhanced. For the year to end September, the fund returned 9.64% against the 0.56% of the All Share index. Thus, the fund manager's intend to continue to invest in this manner.

The fund is overweight local industrials and financials and underweight resources. The fund manager's is surprised to see that the market continues to ignore the strong rand and its effect on the top line of many companies in South Africa. One can expect a new set of profit warnings from South African Inc.

Coupled with lower interest rates and the stronger rand, The fund manager believes that those stocks in which the fund is invested will outperform in the medium-term. The reason being that the valuations of the pure rand hedges are double those in the portfolio. Furthermore, the dividend yields are significantly higher.

The fund has a number of counters that have been largely ignored by the market. It has been the fund manager's experience that eventually the market takes notice of these stocks and realises that the earnings are still coming through. At that point it moves to the other extreme where it cannot get enough of the stock. A good of example is MTN, which the fund manager's think is overvalued.

In the short-term, the markets look poised to continue their positive momentum. There appears to be an abundance of positive strategists and commentators advising that the bad news is over. It is precisely at these times when markets do not behave in line with expectations. Locally, it will all depend on the rand and will more than likely remain "stronger for longer."

In September 2002 the fund manager's took the decision to exit from the funds foreign holdings and focus the fund on a maximum of 30 counters. Nine months later this strategy appears to have paid off. A close look at the ranking tables places the fund in the upper quartile. While the fund manager's are satisfied with the fund's performance, they believe that they can further improve returns by taking the fund to a maximum of 25 counters.

Perhaps the most pleasing aspect of this year's performance has been the funds position in media and telecommunication stocks. Credit must go to the funds investment analyst on this sector, Gavin Joubert, whose thorough research gave the fund manager's the confidence to make these investments. The strong rand bodes well for these businesses, and the lower interest rates will provide some support to consumer spending.

The media sector also benefits from the reduction of interest rates. Advertising spend, a key driver of revenues, tends to grow much faster than nominal GDP. Another exciting position is Kersaf/Sisa. The gaming industry will also benefit from an easier monetary policy and to a lesser extent from the increase in tourism to South Africa.

In the short-term, black empowerment initiatives, while necessary, will continue to dampen the local equity market. As the markets work through this process, the equity market will re-rate and reflect the lower cost of capital. In the long run, however, the local economy will have to attract fixed investment from offshore to sustain this re-rating.

Geopolitical uncertainty, war in Iraq, poor economic factors and of late an epidemic flu virus (SARS) contributed to a negative quarter. Investors continue to invest in the "flight to quality" sectors ie, bonds and cash.

On a relative basis the fund has performed well. This can be attributed to the portfolio containing a maximum of 30 counters, thereby ensuring focused investment decisions.

The fund manager's continue to favour banking stocks as they anticipate interest rate cuts in the second half of the year, lower risk of bad debts and a consolidated industry. Regulatory risks are already priced and the prevailing multiples and dividend yields are not demanding.

Within the food sector the fund manager's two favoured stocks are Tigers and AVI. Both companies are attractively priced and have a balanced portfolio of businesses that should provide protection in these uncertain times.

The fund has attracted new inflows, which has allowed the fund manager's to invest in smaller and mid cap shares as well as slightly more illiquid stocks.

By taking a focused approach to stock picking and assertively implementing coronation house views, the fund produced a satisfactory return in the final quarter of the year. While still early in the new year, it would appear that this positive momentum is continuing into the first quarter.

Over the past quarter, the fund manager's fortunately reduced the funds dollar exposure offshore in favour of rand hedge stocks on the local exchange. The strength in the rand bodes well for interest rate cuts, hence the funds overweight position in banks where the ratings are not demanding, dividend yields are attractive and with the anticipated downward cycle in interest rates the threat of bad debts should diminish.

The fund manager's still find the valuations in telecommunications, media and selected counters in the technology sector appealing, and continue to be overexposed.

Looking ahead, the fund manager's will endeavour to maintain the fund at the 30-counter level with the aim of delivering positive returns for 2003.