September was a cracker of a month for equities. The PSG Equity Fund enjoyed gains of 9.4% during the month, which exceeded the All Share's 8.7%. This saw the fund making new 12 month highs during September.

Steinhoff, Naspers, Sasol and Blue Label were positive contributors to relative performance during the month. MTN, Anglo and British American Tobacco detracted from performance in September.

Standard Bank and Angloplat were additions during the month. The fund has been materially underweight financials, and banks in particular, for some time mainly due to our bearish outlook for advance growth during a de-leveraging cycle. We remain underweight banks but added Standard Bank after significant outperformance by domestic industrials and reasonably attractive valuation levels.

We are of the view that Angloplat's underperformance of the JSE, the gold stocks and the rand platinum price in recent months has been excessive, hence our decision to add the stock to the portfolio.

We reduced our exposure to British American Tobacco (though we retain almost 5% of the fund invested in the stock), Tiger Brands and Blue Label during the month.

The PSG Alphen Growth Fund will change it's name to PSG Equity Fund, effective from 1 September 2010

The second quarter of 2010 ended up being the worst quarter for equities we have had since 2008 and the global financial crisis. The All Share Index shed 8.2% over the three months to 30 June.

PSG Alphen Growth out-performed by a significant margin (in excess of 4%) over the quarter. This can be ascribed to our generally defensive positioning and some effective hedging of equity exposure. The fund also benefited from being underweight resources and overweight gold.

During June, we reduced our gold exposure in favour of Sasol and Anglo American - in which we see value at current levels and hence have reduced our underweight. Though we continue to like the long term prospects for the gold price in rand terms, gold does look quite hyped and significantly overbought. We prefer to be quite nimble with our gold exposure.

Within telecoms, we switched our Telkom exposure into Altech. Telkom has out-performed on the back of a better than expected dividend whilst Altech is starting to offer very good value and an attractive dividend yield.

We further raised our Naspers exposure and after recent weakness now see good long term value (in both relative and absolute terms) in the share.

The fund and the domestic stock market both put on strong performances during March. The FTSE/JSE All Share Index (ALSI) ended March at a 21-month high and a level of 28747. The recovery in stock prices since the lows of just over a year ago that coincided with the banking crisis have been nothing short of astounding - the ALSI is 62% off its lows and a mammoth 137% when expressed in US dollar terms. Recent economic data from around the world has become increasingly positive and further improvement is likely to continue to underpin the rally.

Many of the larger capitalization financial and industrial stocks are currently trading at all time highs, an extraordinary achievement when you consider what has transpired over the past three years.

The fund had a great year in 2009, a year in which value-based stock picking delivered handsome returns. We have found 2010 more difficult. As previously mentioned, we are primarily focused on identifying and remaining invested in shares that offer good absolute and relative value. Unfortunately, at current share price levels, we are finding fewer and fewer opportunities.

It is clear that many stocks are starting to discount a very good earnings outcome over the next few years and risk premiums are in many cases very low. With our focus on being invested in the right stocks, we are happy to stick it out with the stocks we like and are taking care to avoid the areas that could give rise to permanent capital loss or at best very mediocre longer term returns.

We have been trimming back some of our larger positions given the strong share price movements of late. We sold all of the balance of our Naspers position in March. Though we continue to like the business, the share has factored in significant growth prospects over the next several years (it is trading on a 12 month forward PE ratio of above 17) and is taking into account almost no risk, hence our decision to take profits.

We also trimmed Anglo, MTN and Tongaat on share price strength.

We raised exposure to Sasol, a company that we believe trades at an attractive valuation level. We also added to Telkom, one of few companies that looks excessively cheap and is priced for a very bad outlook, hence offering an attractive margin of safety.

On the whole we were net sellers during the month.

We employed some of the cash raised into NewGold (the gold ETF) that offers attractive diversification properties.

We continue to view the overall environment as likely to remain equity-friendly over the near term, but as an asset management house are happy to take money off the table as markets move higher. We worry about what impact the prevailing extremely low risk premium for all asset classes will have on future returns, especially when one considers the hurdles that the global and domestic economies will have to face up to in the months and years ahead.

PSG Alphen Growth had a good December (gaining 5%) to cap a pleasing 12 month performance. The fund has been well served by the performance of our higher conviction stock picks for much of the year. For the record, the fund returned 43.5% during 2009 versus 32.1% by its benchmark, the JSE All Share Index. It was the top performing General Equity Fund over the period. The JSE All Share added 2.9% in December. The market's strength in December was somewhat surprising as hitherto tight correlations broke down. The dollar strengthened, yet equity markets were strong, commodities (with the exception of gold) held up well, and the rand held its ground. This speaks to increasing confidence that the global economic recovery is on track and sustainable. Alphen's market view is unchanged. Whilst we remain skeptical on the ability of the global economic recovery to generate the growth in profits that many shares are starting to discount, we acknowledge that the ingredients are in place for the rally to continue. Those ingredients are cheap money, high levels of stimulus, increasing investor confidence and an improving economic backdrop. Alphen remains focused on owning the right companies. We are confident that our higher conviction overweights, being companies with visible and sustainable earnings outlooks for which we are not overpaying, will deliver fairly attractive medium term returns. Our top active overweights, British American Tobacco, MTN, Steinhoff, Tiger Brands and Bidvest, fall into this category. We are very cautious of sectors and shares that we think could disappoint the market on account of the earnings recovery being priced in not materializing. Many of the Resource shares fall into this category - rand strength has countered most of the rise in dollar commodity prices, yet they have enjoyed massive rises in their prices. Within Resources we have been content to focus our attention on the area where earnings forecasts are being upgraded (even in rands) and in December we raised our weighting in BHP Billiton and Anglo American. In December we sold out our platinum and gold holdings in their entirety largely in favour of the diversified metal producers as discussed above. We trimmed SAB Miller after its massive rally. Whilst we will seek to minimize capital losses in the event of a material correction on equity markets, we are not willing to fight the rally and our primary focus remains to own the right stocks. Accordingly the fund held a relatively low 2.4% cash holding at the end of December 2009.

Shaun le Roux

PSG have decided to leave the PSG in front of the Alphen funds' names.

Alphen Asset Management have changed the names of all of their funds by removing PSG from the front of their fund names.