The STANLIB Flexible Income Fund was launched on 1 May 2004. It was allocated to the Domestic Fixed Interest Varied Specialist category in the unit trust survey.

The Fund attracted good inflows of R100m over the quarter, complementing the current range of fixed interest funds. Trades for the third quarter ending 30 September 2004 included the sale of government paper in the short and medium end of the yield curve. Purchases included longer dated government stock. Exposure in parastatals were increased through purchases in Telkom. Exposure to corporate paper was taken in the form of ABSA, NBC, African Bank, Investec. Exposure to Standard Bank was also increased through the purchase of newly listed preference shares. In this quarter the SARB MPC surprised the markets at the August meeting, by lowering the Repo rate from 8.00% to 7.50%. The SARB cited lower than expected inflation numbers and a strong Rand as reasons to cut rates, although the high oil price was seen as a risk to inflation targeting. The rate decision caused interest rate views to be revised lower and interest rate markets pricing in the probability of more cuts in the current cycle. The persistent high oil price is a cause for concern regarding the lowering of rates in the current cycle. The money market curve moved lower over the quarter, with the 12 month NCD starting at 8.90%, continuously trading lower, easing to 7.45% at quarter end. With the Rand trading in a stable range around the R6.50 level to the Dollar, but very high oil prices, it is likely that the SARB MPC will remain neutral on monetary policy. Modified Duration: 2.3%.

The Stanlib Flexible Income Fund was launched on 1 May 2004. It was allocated to the Domestic Fixed Interest Varied Specialist category in the unit trust survey. The Fund attracted good inflows over it's two month existence, complementing the current range of fixed interest funds. Purchases included government stock across the curve. Exposure to corporate paper was taken in the form of Edcon and SA Homeloans securitisation issues, and secondary capital from Standard Bank and Nedbank.

In this quarter the SARB MPC kept the repo rate on hold at both meetings in April and June. The inflation fear created by the oil price trading above the $40 per barrel, was offset by the continued strength in the Rand. The Rand strength is surprising most inflation forecasts on the down side, prompting market participants to revise their inflation and interest rate scenarios. Interest rates could move sideways for a longer period of time, than anticipated at first.

The money market curve moved higher over the quarter, with the 12 month NCD starting at 8.60%, trading as high as 9.10%, before easing to 8.90% at quarter end. With the Rand close to the R6 level to the Dollar, we could see the SARB MPC remain neutral for longer on monetary policy.