In September, the All Share Index gained 8.7% with Consumer Services the best performer (+14.2%), followed by Oil & Gas (+11.4%). In comparison, the Mid-and Small-Cap Indices gained +7.0% and +6.3% respectively. The Nedgroup Investments Entrepreneur Fund's performance was encouraging, aided by continued momentum in the retail sector. The performance of holdings in Clicks (+17.9%), Foschini (+16.9%) and Lewis (+13.6%) was pleasing. However, our holdings in Palamin (-3.6%) and Optimum Coal (0%) detracted from our performance. Over the quarter, the resource component of the fund was disappointing; specifically, Palamin (-14.3%) and Optimum Coal (-12.6%). This was fortunately offset by the performance of our consumer stocks; Foschini (+31.3%), Clicks (+30.2%) and Mr Price (+22.9%). Foreign ownership of SA equities, particularly in the retail sector, has been a topical theme in 2010. This continued in September, with Wal-Mart (the world's largest retailer) expressing interest in acquiring Massmart. 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. 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. The rising gold price substantiates the concerns about the sustainability of the economic recovery -gold reached a record high in September, rising above $1 300 an ounce. In South Africa, headline CPI inflation eased further to 3.5% in August. The rand remains strong against the dollar, driven by strong foreign bond and foreign equity inflows. The combination of lower-than-expected inflation (due to the rand strength) and sluggish growth provide ground for a further rate cut. A softening economy, bloated fiscal deficits and the prospect of deflation are leading concerns. However, equities may continueto grind higher on the back of extremely accommodative monetary policy. Given the lingering imbalances, our investment themescontinue to focus on defensive positions in tobacco, pharmaceuticals and food (eg Spar and Adcock Ingram). In addition, we hope that our more active management style will identify opportunities from which we can profit.

The market continued its decline in June (JSE All Share -3.2%) and is now down a little over 4% for the year to date. The Nedgroup Investments Entrepreneur Fund once again did well to limit the decline in unit price. In the context of the JSE Mid- and Small-Cap Indices, returns of -1.0% and -2.3% respectively, this is considered satisfactory. Over the quarter, the resource and fixed investment component of the portfolio were the most negative contributors to performance, most notably, Murray & Roberts, Altech, Altron and Palamin. Fortunately, however, the consumer and defensive component of the portfolio offered the most protection and more than offset the negative component. Special successes have been Mr Price, Clicks, Shoprite, Trencor and Spar.

We have used the outflows from the portfolio in the last few months to focus the portfolio on the stock selections that we have the highest degrees of conviction about, while discarding those about which we have had any lingering concerns. This has had immediate benefits, and we are very pleased with the portfolio's relative performance versus not only its index benchmarks and peer group, but also against the JSE All Share and the General Equity sector.

After a lackluster start to the year in the first two months of 2010, the market recorded a very strong performance in March with the JSE All Share Index rising by nearly 8% and bringing returns for the quarter to 4 5% In comparison the Mid- and Small-Cap Indices assisted significantly by their limited Resource component (JSE Resources Index +2.1% for the quarter) and large Retail exposure (JSE General Retail Index +17% for the quarter) rose by 8.7% and 5.5% respectively.

Significant out-performers for the quarter included Palamin, Mr Price, Shoprite and Clicks. Notable under-performers included Murray & Roberts, Raubex, Group Five and Altech.

For most of the last two years, the portfolio has maintained a heavy bias towards larger market cap businesses and regular readers of our commentary will be familiar with our approach of sticking to businesses that we found that were reasonably valued and more importantly, where we were confident of their ability to grow their profits and dividends in the difficult economic situation the world and South Africa found themselves. While we acknowledge that the risks still exist, in some cases we would even say that they are higher, our research is identifying several small businesses that seem to be weathering the economic storms, managing to hold and in some cases even grow their profits, but where their prices remain heavily depressed as a result of many reasons including, market capitulation, illiquidity and selling pressure.

In particular in March, we have continued to raise the portfolio's exposure to a sector that is much unloved. Last month we wrote about this sector - the Building Contractors, and it now represents 23% of the portfolio and consequently, it will be apparent that our view is that the market is discounting an overly pessimistic outlook. In addition, where we have been adding has been in the smaller market cap businesses - many of which are trading at low single digit PE's and mid single digit dividend yields. We are quick to point out, however, that this strategy is not without risk and the confidence when one speaks to the management of these companies varies widely regarding the outlook. However, notwithstanding the risk and generally tough nature of the industry in which they operate, given their ratings we are selectively prepared to wait through what we think is the toughest period for them and we anticipate that on the back of a prolonged period of relatively low interest rates that private sector spending will start to recover. In addition, we expect that in the face of ongoing service delivery protests and internal strife, the ANC government will accelerate the roll out of government infrastructure expenditure. This macro perspective will favour these businesses.

The fund brought 2009 to a close with a satisfactory rise that resulted in a return of 25.5% for the year overall. In the context of the JSE SWIX +29.9%, Mid-Cap Index +35.7% and Small-Cap Index +28.3%, I admit to feeling a little disappointed with our relative performance. Hopefully investors are patient and see the return in the context of the absolute number +25.5% which on its own is a great return for the one year, and in the context of the fund's longer-term track record.

I am also sure that investors will see the return in the context of the strategy adopted in the fund during the year. Regular readers of our reports will know that in the very uncertain economic environment that South Africa and the rest of the world found itself in 2009, we chose to invest significant proportions of the fund in businesses that we found to be attractively valued (low PE, high dividend yield and low Price to Book Value ratios) and where we were confident that they would be able to grow their profits and dividends regardless of how tough the economic conditions became. While this strategy has proved rewarding (as reflected in the fund's overall return for the year), the shares that were the strongest performers in 2009 were in many cases those where the market has been very quick to discount a recovery in their profits should the world experience a very fast and aggressive rate of economic recovery.

While this may happen, we would prefer to err on the side of caution. In addition, we feel for many companies -this best case scenario is largely discounted and should there be any hiccup in the recovery (which we would attribute an above average chance of actually happening), these companies are likely to come under pressure.

This is particularly evident in the Platinum sector, Household Goods and domestic credit-based retailers (also very big weighting in the Mid-Cap Index), and where we have been relatively under-exposed.

Consequently, we remain guided by a strong sense of fundamental value in our share selection and are confident about the ability of our share selections to grow in the immediate future. We believe the valuations of these selections to be reasonable in a historical context and expect 2010 to be another year of real returns.