In September, the All Share Index gained 8.7% with Consumer Services the best performer (+14.2%), followed by Oil & Gas (+11.4%). The performance of holdings in Naspers (+15.2%), BHP Billiton (+10.7%) and Spar (+10.5%) was pleasing. However, our holdings in Trencor (+4.0%) and Adcock (+4.8%) detracted from our performance. For the quarter, all industry groups posted positive total returns, with the best performance coming from Consumer Services (+24.8%). We are pleased with the fund's performance over the quarter given its increasing exposure to Resources, which lagged other industry groups (+7.0%).

The recent improvement in sentiment is surprising as data on industrial activity, housing and employment remain consistent with a sluggish economic recovery. In the US, housing activity remains close to its lows, and unemployment claims remain at elevated levels. At the September Federal Open Market Committee meeting, the Fed maintained that the recovery in output and employment had slowed. In the eurozone, the PMI declined significantly from 56.2 in August to 53.8 in September, pointing to a phase of moderation after a strong performance in the first half of 2010. A period of disappointing global growth is a growing risk.

Monetary policy actions have not been as effective as hoped, but remain stimulatory. In September, the Fed announced that it is "prepared to provide additional accommodation if needed to support the recovery". It is, therefore, not surprising that gold prices continue to rise, reaching a record high in September, rising above $1 300 an ounce.

In South Africa, headline CPI inflation eased further to 3.5% in August, yet food inflation is starting to edge higher. The rand improved to its strongest level against the dollar in two and a half years. As mentioned last month, the combination of lower-than-expected inflation and sluggish growth provide ground for a further rate cut. Foreign interest in the retail space continued, with Wal-Mart (the world's largest retailer) expressing interest in acquiring Massmart.

A softening economy, bloated fiscal deficits and the prospect of deflation are leading concerns. There is still much balance sheet repair to be done in the financial and consumer sectors, which represents a serious headwind to growth. However, equities may continue to grind higher on the back of extremely accommodative monetary policy. We retain a cautious investment strategy until a clear economic picture emerges, and hope that our more active management style will identify opportunities from which we can profit.

Equity markets continued to decline in June with the FTSE/JSE All Share Index recording a negative return of -3.2%. Over the quarter, the All Share Index posted a negative return of -8.2%. Consumer Goods (+2.0%) was the only industry group to post a positive return for June. The portfolio's defensive characteristics continued to prove their worth and the performance of British American Tobacco (+8.0%), Shoprite (+5.9%) and Reunert (+5.1%) helped the portfolio to do relatively well. However, the performance of holdings in Naspers (-13.7%), Anglos (-7.6%) and MTN (-6.4%) were disappointing.

News flow has been mixed. On a positive note, quantitative easing mechanisms remain at play and several economies are showing signs of strength (for example, Chinese exports were up 48% in May). However, on the negative side; the debt crisis in Europe is fueling uncertainty and recently released US home sales and payroll data points to a sluggish recovery in the US (new family home sales tumbled by 32.7% in May - the lowest recorded level in the series' history). A collapse in economic activity in Europe would be negative, but of greater importance is China (Chinese economic growth explains 37% of the increase in global output over the last three years). Several market commentators have also expressed concerns around developments in China (ie the Property sector).

Also of significance was the resignation of Kevin Rudd, Australia's Prime Minister, following the controversy around and lack of support for his proposed Resource Super Profits Tax. This gave some short-lived support to the Resources sector. Additionally, the People's Bank of China announced its intention to increase exchange rate flexibility. A stronger Renminbi would have a positive impact on commodities, improve the purchasing power of Chinese consumers, but would have an inflationary impact on goods exported (ie making clothing imports into South Africa more expensive). A stronger Renminbi would benefit Naspers through the translation of Tencent's profits into rand.

In South Africa, CPI inflation fell to 4.6% in May, its lowest level since May 2006. Despite the lower than expected inflation reading, the South Africa Reserve Bank (SARB) kept rates unchanged in the second quarter of 2010. The SARB could be pressured to cut interest rates given the low levels of inflation however spikes in electricity prices and wage settlements pose upside risks to the inflation, however, inflation outlook.

The failure of stocks to outperform gold substantiates the concerns about the sustainability of the economic recovery. Downside risks have increased, and with interest rates already close to zero, and budget deficits at concerning levels, the outlook for the western world economies appears bleak. Given the fragility of the economic recovery, we believe equity market volatility will likely persist until there is more clarity about the outlook. We, therefore, continue to hold defensive positions in tobacco, food retail, pharmaceuticals and gold; although we have used the recent market weakness to reduce cash and add to certain underperforming shareholdings.

The JSE FTSE All Share Index performed strongly in March, posting a total return of 7.9%. Basic Materials (+9.7%) and Consumer Goods (+8.2%) were the best performing sectors, with Technology (-1.5%) the weakest performer. Over the quarter the ALSI posted a total return of 4.5%, below that achieved in the previous quarter, 11.4%.

For the portfolio, the strong performances in March of Anglo American (+15.4%), Investec (+14.8%), and Naspers (+9.9%) were negated by the underperformance of Shoprite (-1.9%), MTN (+0.1%) and British American Tobacco (+0.5%). As usual the portfolio's defensive positioning led to protection when the market was weak, but underperformance when the market was strong. The portfolio benefitted from the buying of banks and financials in December and January and switches into Anglo American when the share traded down in February.

Global trade is recovering and output in Asia has been strong. The China Manufacturing PMI rebounded to 57.1 in March 2010 from 55.8 in February 2010, signaling that industrial production has accelerated. Private consumption grew in the US, and home prices and labor market indicators appear to have stabilised. This was reflected in the US consumer confidence indicator which improved to 52.5 points in March. Employment growth will be vital to maintaining the recent acceleration in spending.

SA consumer data continues to improve - highlighted by a sharp improvement in the Purchasing Managers Index (the index improved to 60.4 points in February, compared to the 53.6 points in January), continued growth in new vehicles sales and improved consumer confidence (BER consumer confidence measured 15 points, the highest level since 2007). Retail sales, while still negative, were better than market expectations (January retail sales contracted by 1.7% year-on-year, less than the -2.4% forecast). Surprisingly, the Reserve Bank cut rates by 50 basis points in March, sighting the need to underpin the sustainability of the recovery. The rand, however, continued its march against sterling and the euro, which also hampered the performance of the portfolio - the portfolio now has a considerable rand hedge bias.

While some metrics have improved, world economies still face an uphill battle against rising interest rates, taxes and declining government spending. Share prices have moved higher and higher over the past year in response to low interest rates and the mountain of uninvested cash, which existed a year ago, is now considerably reduced. The S&P 500's price-earning multiple now trades approximately 30% higher than the average over the last 30 years. This pricing disparity also holds true for our domestic exchange. When central banks finally allow interest rates to reach more appropriate levels, the underlying problems may emerge.

Thus, we reiterate our closing comments from last month's report; while low interest rates persist, equities may move higher given their relative attractiveness to cash. Notwithstanding the risks associated with the economic and financial outlook, we remain fairly fully invested; but continue to focus on defensive plays and companies on relatively low P/E multiples with good growth and cash flow prospects (eg Anglos, BHP Billiton, British American Tobacco, MTN, Naspers, Newgold, Shoprite and Spar).

The All Share Index gained 2.9% in December 2009. This brings a close to a turbulent and challenging 2009. The Nedgroup Investments Rainmaker Fund's unit price increased by 3.6% for the month of December. The performance of Mediclinic (+11.2%), Naspers (+8%) and Spar (+7.2%), was offset by AngloGold Ashanti (-5.4%), Investec (-2.6%) and MTN (-0.7%).

For the year as a whole the fund's unit price increased by some 28% which was below the 32.1% increase of the JSE All Share Index. Note that in US dollars the index rose 70.1%, aided by the 22.3% gain in the rand's value to the US dollar. While the return of 28% is most satisfactory in absolute terms, we are disappointed to have lagged the ALSI. The underperformance is explained by our defensive positioning; about 20% of the value of the fund has been represented by British American Tobacco shares, cash and Newgold (the gold ETF), whereas the index has no weighting in these holdings. In addition, the shares that were the strongest performers in 2009 were in many cases those which are now discounting an unlikely recovery in profits. This has been particularly evident in the Platinum sector where we have been relatively under exposed. The performance of Naspers (+81.9%), Old Mutual (+73.4%), Adcock (+41.1%) and Billiton (+38.4%) offset this to a degree.

While the global economic conditions have improved, the market is entering a riskier and most likely, less rewarding phase. The recovery will remain subdued compared to prior recoveries due to the significant damage that was done to financial infrastructure over the past year. Additionally, as the extraordinary stimulus measures are phased out economies and equity markets will be vulnerable to weakness, higher tax rates and higher interest rates. Recently, the People's Bank of China increased the reserve requirements of Chinese banks by 50 basis points, in an effort to cool an overheating economy. This signals a tightening bias in China and underscores a trend which is likely to continue worldwide.

As we enter 2010, we reiterate the fund's positioning; a defensive stance with high quality, growing cash generative businesses (eg British American Tobacco, Shoprite, Adcock Ingram, and Naspers). The fund should be relatively well positioned from both a market downturn and a decline in the value of the rand from current high levels.