The Nedgroup Investments Entrepreneur Fund battled a little relative to its benchmarks in September 2012 appreciating by 0.6% versus the JSE Mid- and Small-Cap Indices performances of +0.9% and +1.3% respectively. Several of the Fund's larger consumer positions namely Mr Price, Foschini and Imperial detracted from performance as the rand weakened on the back of the spread of labour unrest across various sectors of the economy. Fortunately, these were largely counter balanced by outperformance from various positions unaffected by these issues and who benefit from a weakening currency such as Datatec, Naspers and Coronation.

September was characterised by the announcement from all three of the US, European and Chinese monetary authorities of further easing or stimulus to monetary conditions although the exact tools applied varied between them. Although these were widely anticipated markets nonetheless drew comfort from their actual announcement and rose around the world. The economic doomsday prophets (of which there is no shortage), will argue it's all a fruitless attempt to postpone the inevitable, but as fund managers we are expected to be more nimble, and who knows they may be proven to be wrong in time.

Consequently, while our risk tolerance remains low and we remain as cautious as ever, there have been few changes to the Fund in the last month with the most notable transactions being the disposal of Sentula Mining and the additions to some of the laggards including Super Group and Foschini and a small position acquired in Barloworld - another short-term under performer. . September 2012

In the context of the returns recorded in June 2012 by the JSE Mid and Small Cap indices of +3.3% and +2.8% respectively, the Fund’s performance for the month was a little disappointing. We attribute this to the slightly higher than normal cash holding in the Fund (cash averaged about 6% versus a more typical ±2%), caused by on-going inflows the Fund has received. Performance was supported in the month by our large retail exposure, notably Mr. Price and Foschini, but was pulled back by Palamin and Capitec.

The market’s continuing aversion to Resource shares where the uncertainty of the global economic outlook and demand for commodities continues to be increasingly discounted in the share prices of that sector. While we have limited liquid investment opportunities into that sector, which has probably sheltered us, we have been doing some hard work to try and determine when will be our opportunity to invest - specifically into the severely out of favour platinum sector. Our conclusion so far has been - not yet!

We draw comfort from the much higher confidence with which we anticipate growth in profits and dividends from our financial and industrial holdings, and while mindful of their relatively higher valuations, have been quite selective and less aggressive in taking profits where we feel this is warranted. In addition, we have worked hard to identify a few new counters that we feel offer better relative value in the industrial sector and where we will be applying the Fund’s fresh cashflows to keep the Fund reasonably fully invested.
The future (while uncertain before), we feel has become even more so in the last month and we have consequently been selling out completely from counters where we have any doubts concerning the predictability of the near term earnings streams.

We are pleased to be able to report that the Nedgroup Investments Entrepreneur Fund has continued to outperform for another month, comparing very favourably with the JSE All Share Index (-1.4%), the JSE Mid Cap Index (+2.9%) and the JSE Small Cap Index (+3.1%). The absolute and relative returns are satisfactory and fortunately, the Fund has also performed well in comparison with its peer group of unit trusts.

As naturally conservative investors, we would reiterate the point made in last month's commentary that in the context of the Fund's returns over the last year (+33%), two years (+25.2% compound) and also three years (+32.4% compound), investors should not base their future expectations of returns on these high historic rates of return.

At the same time though, we remain comfortable with the Fund's positioning and the relative value that our stock picks offer, although some of the domestic consumer-oriented businesses, notwithstanding their exciting growth prospects, are looking quite fully valued. We will, of course, do our best to remain nimble and to seek out new smaller business opportunities that are trading at attractive valuations.

Activity in the last month has been restricted to disposing of one investment where, following detailed research, we became much less comfortable with its growth prospects. The proceeds were applied to a variety of smaller existing holdings and cash remains relatively low at just over 5% of the Fund.

In comparison with the highly volatile months we have become accustomed to, December 2011 was relatively stable with the seasonal decrease in trading volumes around the holiday period having the usual impact.

We are very pleased to have managed to end the year on a good note with the portfolio outperforming in December in comparison with the JSE Mid-Cap Index +1.3% and the +3.8% of the JSE Small-Cap Index. On a longer-term basis, we are even happier to have produced a return of 13.5% for the year to 31 December 2011 that compares favourably with the JSE All Share's +2.6%, the JSE Mid-Cap Index +4.7% and the +1.1% of the JSE Small Cap Index. In addition, the portfolio finished first among its peer group of unit trusts over one year. We'll do our best to try and maintain the track record and assure investors of our best attention to this goal.

As we look ahead to 2012, our investment view is as follows and investors who are regular readers of our monthly commentary should not detect any surprises.

We have confidence that the emerging economies of the world (albeit dominated by China that very encouragingly has started to relax its monetary tightening stance), buoyed by growth in their domestic consumers will have growing economies. In contrast, we are increasingly skeptical of the European politician's ability to negotiate and implement an orderly and realistic debt repayment program and believe that in any event, its implementation will doom their broader economy to little if any growth for several years to come. Four years after their financial crisis, the US economy is showing some signs of life, but we expect these to be lackluster. As a consequence, we believe a healthy defensive component of the portfolio is warranted (despite these being the winners in 2011), offset by select large positions, which offer significant value and will be the winners should things turn out to be a little better than our bearish expectations.