The biggest contributors to the portfolio's performance over the quarter were Anglogold and Goldfields that gained 14.0% and 23.5% respectively. Most of the other stocks had poor returns in the quarter, especially the platinum counters.

Global equity markets are still being affected negatively by events in Europe. Increasingly, investors are questioning China and whether its demand for commodities can continue. Commodities that are most exposed to Europe are platinum and paper stocks and clearly demand expectations will need to be changed. The PGM basket has fallen substantially and will put more pressure on the earnings estimates of the platinum producers. It does not help that the platinum producers are some of the more expensive counters in the JSE resource space.

Iron ore and coal have so far been very resilient and to some degree oil has as well. BHP Billiton has the biggest exposure to these three commodities. There is understandably some suspicion about iron ore and coal as they are not freely traded like copper and oil and can sometimes be slower to act. However, we do know that speculators and investors have added volatility to silver, gold, palladium and copper - hence some of the movements in these prices are amplified by investor positioning, rather than commercial activity.

In terms of earnings going forward, it is going to be very difficult to grow in 2012 given flattening commodity prices, muted volume growth and rising costs. Going forward, capital allocation is going to play a very key role. We remain concerned about companies that have struggled in the last 12 months as this should have been a very lucrative time. Two examples are Harmony and African Rainbow who have not been able to take advantage of the recent high commodity prices.

The portfolio generated a return of -2.4% for the quarter ending June 2011, versus the peer group benchmark return of -4.6%.

The biggest contributors to the portfolio’s performance were Exxaro, Mondi and Metorex. Exxaro gained 11.7%, on the back of an improving outlook on their mineral sand business. We still believe the coal assets are under-rated in the company. The worst sector was gold that returned -13%.

The headlines in commodity markets are still dominated by Greece and the removal of QE2. Both actually have a small impact on commodities. The bigger driver of commodities remains physical activity out of China. The news here is still one of commodity growth, but not at the same rate that we have seen in 2009 and 2010. In some commodities such as copper, consumption is slightly lower but for iron ore and oil it is ahead of last year. Physical activity numbers in Germany and the USA are also holding up well as measured by container and railroad shipments. Since 2008, markets have tended to paint everything with the same brush. Thus Greece ends up dominating currencies, debt markets, equities and commodities. Eventually the correct macro drivers will reassert themselves in the respective markets.

The Nedgroup Investments Mining and Resource Fund comfortably outperformed the composite benchmark return of 2.4% for the quarter ended 31 March 2011.

The biggest contributors to the portfolio's performance were the iron ore companies: Kumbaand Exxaro, which returned 16.6% and 19.7% respectively. Mondi also performed well returning 22.3%. The main detraction from the portfolio's performance has been Impala Platinum,which fell by 16.1%. Two of our largest holdings, namely BHP Billitonand Anglo,had muted returns while our third largest counter Sasol,returned 11.5%.

Despite many macro hiccups, the commodity space has proven very resilient. Commodity prices have held up well and most commodity companies have seen earnings upgrades. Valuation is still compelling as fears about the outlook for China and Europe remain. However, corporate profits have rebounded and merger activity is accelerating. Despite fears about the removal of QE2, ultimately global interest rates remain very low.

In this environment of strong commodity prices and the strong rand, the global mining companies should perform better than the local miners especially as another round of electricity prices needs to be absorbed.

The portfolio is positioned accordingly. Clearly the rand is somewhat overvalued, but this is a feature of many emerging markets and is also a feature of periods of rising commodity prices. Companies that have risk to their earnings remain the platinum producers as well as the gold companies.

For the quarter ended December 2010, the portfolio marginally underperformed the composite benchmark return of 15.7%.

The biggest contributors to the portfolio's performance were the diversified mining houses with Anglo, BHP Billiton and Exxaro returning 21%, 17% and 14%. The portfolio's holding in Impala Platinum also contributed strongly, outperforming Anglo Platinum by 23%. The biggest detractor from performance was Mondi that declined more than 5%. Our small-cap holdings also performed well with Sovereign Foods, Astral, Metorex and Sentula returning 30%, 15%, 28% and 12%.

Some of the fear that was evident in the market is starting to dissipate resulting in strong returns for both commodity and resource shares. Copper is at an all time high and is nearly 50% higher than where it was in June 2010, Iron ore is at a record high and Oil is almost back at $100/barrel. Economic activity is broadening across the globe despite the continuing fears of the sovereign debt crisis. It is worth remembering that commodities are still very much a developing world phenomena as opposed to a developed world story. This also shows up in the difference in commodities that are linked to GDFI investment (iron ore and copper) outperforming those linked to consumption (aluminum and paper).

Our valuation work -which uses commodity prices substantially lower than current prices -shows that the best valuations remain in the diversified mining companies. Most expensive are the gold equities and some select platinum producers such as Amplats. Sasol is a fairly priced asset compared to the SA market but looks a bit expensive compared to the major international oil companies.