The fund outperformed the composite benchmark return for the quarter to September 2009.
The biggest contribution to the fund’s performance came from Kumba and BHP Billiton that gained 43.2% and 17.6% respectively. The biggest detraction from performance came from Implats and Sasol as both only gained about 6%. In addition, some of our holdings in food also detracted from performance.

While commodities have rebounded a lot, the month of September has seen a slowdown in the rise of commodities as imports into China have slowed from very high levels -specifically Iron ore and copper imports are down some 25%. As China is now the only growing country and being such a large participant in metals, the growth path of GDFI(Gross Domestic Fixed Investment) in that country is very important. Loan growth has slowed as the Chinese authorities have tried to reign in some of the credit extension. So although we won’t see a collapse in commodities like we did in the later part of 2008, we are not expecting any further gains.

The last quarter’s equity gains have been very strong in some of the more speculative companies that are either loss-making or highly leveraged companies. It is always difficult to value such companies, but some of the gains are implying returns back to normal margins. Unfortunately, while the world is healing, it is a long way off trade being normal. We expect value situations to be the main drivers of returns going forward.

With the rand at these strong levels we have a preference for companies with overseas assets as opposed to local operations.

The biggest detractors from performance for the month came from the fund's large holdings in Billiton, Sasoland Gold Fields.The fund's other significant position in Anglo Americanfaired much better following news of an unsolicited approach from London listed Xstrata. Holdings in non-resource industrial counters Illovo, Sovereign Foodsand Avengall generated a positive contribution for the month.

A key feature for June was evident in the underlying commodity prices, which after steadily rising since December 2008 slowed their upward trend. Questions were being raised about global growth and in particular, the sustainability of China's demand for commodities. In the case of precious metals, the dollar prices actually declined over the month with gold ending 5% down and platinum down 1%. When taking account of the strong rand, which traded below R8 against the US dollar during June, the market once again focussed its attention on the prospects of depressed earnings from the domestic producers.

The fund continues to maintain its defensive bias and favours holding positions in the large diversified producers.

The earnings outlook for the resources counters remains uncertain and we continue to see earnings downgrades on the back of the rand's strength.

The Nedgroup Investments Mining and Resource Fund outperformed the composite benchmark for the first quarter of 2009. The biggest contribution has been Gold, Lonmin and non-mining holdings, such as Illovo. The biggest detractors were Sappi and Anglo-American.

While one cannot say with absolute conviction that a bottom has been formed in commodities, we do know we are somewhere close. Many industries have more than 40% of their constituents losing money, most notably zinc, nickel and aluminium. What we don't know is where the bottom in earnings lies. A lot will depend on individual company and industry cost cutting and restructuring. Sometimes this is a three-year process and in other cases, like Paper, it seems a permanent feature of the industry. For this reason, we are staying away from leverage and small -cap mining stocks. We are still surprised that investors are willing to fund start ups (like junior platinum mining) or to fund companies in indust ries where there is too much capacity (Paper and Gold).

It seems to us that there are still too many investors approaching mining companies as if they are options. Why fund a start up platinum mine when one can buy Impala with all its unexploited resources? Similarly, buying Biliton is a far better idea than funding junior diversifieds. If one was to get these "options" for close to nothing, then this would make sense, but to the contrary, these options are very richly valued. The current downturn could be very drawn out, and current profitability will be way more valuable than an option on a project that may have operations in three year's time - if commodity prices bounce. It amazes us that despite the poor economic outlook, there is still far too much speculation in junior mining.

The Nedgroup Investments Mining and Resource Fund outperformed the composite benchmark return of -12.1% for the fourth quarter, ranking first in the Domestic Equity - Resources & Basic Industries - category over both the quarter and the calendar year.

The market has to some degree recognised that the next year is going to be very weak for commodities. Trying to differentiate between which commodities is going to do better than the next is probably a fruitless exercise. There are differences, but they are slight compared to the major downturn taking place. Valuations are reflecting a weak 2009, with 2010 still very uncertain, but expecting valuations to remain depressed. June 2009 will allow individuals to assess how companies' earnings are dealing with the dramatic fall-off of commodity prices. In addition, debt levels have become a key concern for mining companies and capex spending and asset sales to address this problem is a key driver of stock prices. Lonmin (high debt) has dramatically underperformed Impala (no debt). Similarly, BHP Billiton (no debt) has outperformed Anglo American (moderate debt) and Rio Tinto (very high debt).

Gold has had a very good year as people have witnessed bank failures happening around them. Thus investment demand more than offset the slowdown in jewellery consumption. 2009 will see abatement in forward financial stress and be more about an economic slowdown. As usual, gold equities are factoring in a much higher gold price than current spot prices, looking expensive compared to other commodities. The fund will thus be aiming to reduce gold equities going forward.

Due to the current economic situation, our preferences remain large cap shares, low debt and diversification. Therefore, BHP Billiton remains our largest holding.