Our market finally took a breather in September after bolting almost 50% from its lows in March this year. Resources and Financials were marginally down and Industrials slightly up for the month. Mastermind delivered almost 2% in the month and has now produced 14.8% alpha in the last six months. We have taken no additional risk in the fund over this period and continue to monitor our ex ante tracking error around 6% and our ex post tracking error at approximately 8%.

There is no doubt that the fund has hit a sweet spot during this market recovery period and we are ecstatic to see our recent performance rankings in the combined general equity, growth and value unit trust categories. We have been vigilant in our sell discipline and have trimmed those counters that have approached our fair value or sold those companies that have reached our fair value. Having said this, our fund remains exposed to those counters that offer cyclical recovery. Albeit that these bets are more constrained given the recent re-rating of our holdings.

Trading in the fund was fairly subdued in the month. We switched some of our Telkom into Vodacom as the market became spooked with the risk of interconnection rates being very negative for Vodacom. Although the implications of reducing interconnection rates are very complicated and the assortment of outcomes is vast, we believe that the de-rating of Vodacom was overdone.

Just a few words on the MTN / Bharti deal given that it was such an enormous transaction for our market. After a few postponements in announcing whether the deal would be on or off, information finally hit the news lines at the end of September that the deal would not go ahead. Of course there would be those that were pleased and those that were disappointed. Our view was that MTN appeared fairly valued in its own rights. There was the potential that the offer price may be increased and therefore some analysts had a view that the MTN share price was factoring this in and that if the deal didn't materialize then the MTN price should fall back. There was also a view that MTN had been constrained by the price ceiling of the deal when the market continued to rally and therefore needed to 'catch up' if the deal didn't go ahead. Well, the reality of it is that when the deal was announced MTN initially fell hard. This was followed by a bounce and some volatility over the next few days with the net result that MTN has effectively gone nowhere. In our view it remains slightly dear to fairly valued.

Lonmin (+10%), Reunert (+10%) and Business Connection (+8%) were the top contributors to our performance for the month. Steinhoff (-5%) was by far the biggest detractor from performance.

The overall market retracted by just over 3% in the month of June, the Resource sector (- 9%) being the culprit for this decline. The gold counters were knocked 17% and BHP Billiton fell 9%. Anglos' modest decline of 3% was attributable to the merger interests with Xstrata Plc. Banks (+7%) and Life Insurance (+3%) enjoyed a strong month, with our preferred exposures to Nedbank up 10% and Old Mutual up 7%. Mastermind had another good month of performance and has built on the momentum of the last quarter.

Business Connection (+13%) was our star performer for the fund, and given our large overweight position, contributed handsomely to the month's performance. Other prominent holdings for the month in order of relative contribution were Nedbank (+10%), Brait (+12%), Steinhoff (+3%) and Reunert (+6%). The fund also benefited substantially by being underweight Impala (-12%) and Sasol (-10%). Lonmin (-18%) was by far the largest detractor for the month. As the counter fell in the month we took the opportunity to add to our investment and it is now positioned as one of our largest holdings in the fund.

We executed a number of trades in the month to re-align the fund with our team's revised expected return targets and to take some profits on counters that have performed well for the fund. We sold our Exxaro holding entirely and reduced our holdings in Nedbank, JD Group, Lewis, Old Mutual and Steinhoff. We used these proceeds by adding to underperforming Sasol, Liberty Holdings and Bidvest counters.

On the macro front, South Africa's central bank surprisingly left its benchmark repo rate unchanged at 7.5% at its June MPC meeting, signaling the end of the rate cutting cycle that started in December 2008. The June decision followed five consecutive rate cuts. While the MPC statement continued to paint a picture of a very weak domestic economy, it highlighted increasing signs that things were stabilising. While weak activity and a firmer rand remained positive for the Reserve Bank's inflation outlook, the MPC highlighted a number of negative risks from cost-push pressures, particularly from electricity and other administered prices.

Lastly, we have observed a contraction in the dispersion of share ratings since the first quarter of calendar year 2009. Cheap value stocks are no longer as deeply discounted and highly-priced share ratings have been moderated. Despite this, Mastermind continues to offer outstanding value characteristics relative to the SWIX with an 18% price earnings relative discount, 28% price to book relative discount and an additional 45 basis points higher average dividend yield.

The SWIX Index recovered well from the lows of February to finish the month of March almost 11% up. The large cap stocks dominated performance (+12%), with the stand out sectors being Platinum (+31%), the large Diversified Mining counters (+16%), Telecommunications (+21%) and Banks (+16%). It appears that global markets have taken encouragement from bail-out efforts and that there might be a rotation back into the more cyclical counters geared to a recovery in global economic growth. Mastermind is currently positioned for such a recovery and we remain invested in those cyclical lowly rated counters that have the potential to outperform when sentiment swings.

We took the opportunity to make a few meaningful switches during the month and to also tweak a few holdings. We sold almost 5% of our holding in Standard Bank and switched 2% into Firstrand and 1% into Nedbank. We have been notably underweight the large cap's SABMiller and MTN and took the opportunity to reduce these underweight positions by adding 2.5% to SABMiller and a further 2% to MTN. We financed these purchases by taking some profits in BHP Billiton and fine-tuning a number of holdings in the fund.

Counters that performed well for us on a weighted basis during the month were Investec (+33%), Lonmin (+33%), Gijima (+59%), Imperial (+19%) and Avusa (+22%). We also did well by not owning any SABMiller (-3%) and Harmony (-16%). On a weighted basis the following stocks detracted from performance: Steinhoff (-11%), Business Connection (-15%) and Bell Equipment (-34%). We also lost ground by being underweight Impala (+34%) and MTN (+24%).

We wrote extensively on our position in Super Group last month and concluded that; 'The biggest risk to the company is that the banks lose confidence in the group. It is now no longer a call on valuation but rather on the group surviving in its current format.' Those concerns were confirmed in March when the group issued a SENS announcement of a rights issue to recapitalize the balances sheet. Allan Gray and Super Group's bankers will underwrite an enormous rights issue of 4.1x the current shares in issue. The effect of issuing 2.2m shares at 45c will mean the book value is diluted from just over R4 a share to R1.15 per share. We believe the size of this rights issue is excessive and will mean that current shareholders will be forced to follow their rights at 45c to recover the capital losses they have recently incurred. The good news is that the group will be significantly recapitalized and will surely survive these turbulent times. How well the company performs operationally is another question, but even if the share price trades at a 30% discount to its new net asset value we calculate that there is material upside from following our rights and investing at 45c.

Mastermind is very cheap on a PE of 6.5x, i.e. a 28% discount to the SWIX PE of 9x. The dividend yield of 5.1% is attractive relative to the market's yield of 4.4%. Despite the strong rally in March, the fund in aggregate is still trading below book value.

We commented on the volatility of the market for much of 2008 and December was no different with the SWIX falling by 8% intra-month, then rising by 12% from this low to finish the month up 3%. Industrials (+4%) led the way, Resources were flat to slightly down and Financials (-2%), mostly banks, were the big losers.

Looking back over the year, the SWIX hit a peak index level of 6580 in May, up 9% from the beginning of the year. From those lofty levels it fell to an index low of 3828 in October, down 42%. Volatility was sky high towards the end of the year where the index closed at 4550, up 19% from its low. 19% is an enormous move in just two months, however, for our market to get back to the levels of May it needs to rise by 72% from the low in October. We agree that it is impossible to pick the bottom of an asset class fall, but the discipline of investing when shares are absolutely and relatively cheap cannot be ignored.

Mastermind marginally underperformed the SWIX benchmark in December. It was unfortunate that the fund experienced a significant cash inflow on a day that the market was up 5%. It had the effect of detracting about 60 bps from performance for the month. In the absence of this, we were very pleased with the strong performance of Steinhoff (+24%, including the dividend payment) and Telkom (+12%). The biggest detractors from performance were Super Group (-40%) and Anglos (-9%).

We took the opportunity to tweak a number of our holdings in line with our expected return rankings and the recent volatile movements of individual shares. We added to Lonmin, Standard Bank, Nedbank, introduced Exxaro and started to nibble at MTN. We funded this by reducing our holdings in Billiton, Kumba, Firstrand, Bidvest and Richemont.

Mastermind remained at a 23% discount on a historic price: earnings relative to the market. The price: book discount is 34% (previously 31%). In absolute terms the fund is very cheap on a price: earnings of 6.8x, a price: book of 1.1x and a dividend yield of 5.9%.