The Kagiso Active Quants Fund commenced trading on 26 April 2004 as the first South African fund available to the retail investor that bases active stock-picking decisions primarily on a statistical model of share returns. The model is based on a large body of robust academic research. Since inception, the fund has been the top performing unit trust in the Domestic Equity General category.

Over the last quarter our performance has been good both in absolute and relative terms. This can primarily be attributed to some successful stock picking with Digicore, PSG, Sasfin and Hiveld Steel being some of the major contributors. Towards the end of the period Gold and Platinum shares surged sharply and not having benchmark exposure was our major source of underperformance although over the period we more than made up for this.

We have slightly increased our rand hedge exposure recently and this has decreased our tracking error. However, we still have large firm specific positions in the shares we like. Going forward the key challenge is when to move further away from the domestically focused shares that have done so well for us over the past and towards gold and other rand-hedge shares.

Kagiso Asset Management
Portfolio Manager

The Kagiso Active Quants Fund commenced trading on 26 April 2004 as the first South African fund available to the retail investor that bases active stock-picking decisions on a statistical model of share returns. The model is based on a large body of robust academic research.
Since inception, the fund has been the top performing unit trust in the Domestic Equity General category. As our one year anniversary was during the quarter, we managed to attain the top General Equity position over 12 months.
Over the last quarter absolute performance has been 6.36%. While, according to Micropal this is above our benchmark (the mean of the other funds in the General Equity sector), we regard the relative performance as solid but not spectacular (15 out of 48 funds).
This is primarily due to the fact that tracking error over the quarter has been kept relatively low at 3.5% due to the choppy and erratic nature of the market over this period. To a certain extent, we have been successful in locking in our good relative performance.
As conditions stabilise and the dynamically calibrated quantitative model adapts to the new environment we will increase our bet sizes again.

The Kagiso Active Quants Fund commenced trading on 26 April 2004 as the first South African fund available to the retail investor that bases active stockpicking decisions on a statistical model of share returns. The model is based on a large body of robust academic research.
Since inception, the fund has been the top performing unit trust in the Domestic Equity General category. However, both absolute and relative performance over the last quarter has, unfortunately, not been as good.
As 2005 started there was a dramatic sell-off in domestic equities. In particular, avid profit taking occurred in many of our stockpicks (particularly in the retail sector) that had run hard in the last months of 2004.
The fund's mandate is to remain fully invested in domestic equities and our quantitative model preferred the shares in which we were overweight. This proved to be incorrect over this period. It is our policy not to bet against the model on average - although in the case of certain shares we may override its suggestions - as evidence implies that over the longer period, this approach will prevail.
Over the quarter the rand also weakened somewhat and the fund was underweight rand hedge securities. In mid- February we lowered our tracking error relative to our benchmark (the average return of the other funds in the sector) from 5.8% to 4.5%. In late March the tracking error was further dropped to 3.5%.
As conditions stabilise and the dynamically calibrated model adapts to the new environment we will increase our bet sizes again. Our one year anniversary is 26 April 2005 and we are hoping to coast in as best General Equity performer over this period despite our underperformance over the last quarter.

The Kagiso Active Quants Fund commenced trading on 26 April 2004 as the first South African fund available to the retail investor that bases active stock-picking decisions on a statistical model of the share returns. The model is based on a large body of robust academic research. Its primary designer, Professor Paul van Rensburg, is the portfolio manager.
Since inception, the fund has been the top performing unit trust in the Domestic Equity General category by a relatively large margin. This was also the case over the last quarter where the fund earned a return of 27.17%. This is 9.71% in excess of its benchmark, which is the average return of the other funds in the sector (17.46%). Over the last six months investors in the fund would have earned a total return of 50.80%.
The fund is suitable for the investor seeking aboveaverage performance. The fund is currently structured to have tracking error of 5.8% relative to its benchmark. Its beta and absolute risk is relatively low. Primary (relative) risks include remaining underweight rand hedge and large capitalisation stocks.