The past quarter turned out to be a very favourable period for equity markets around the world including South Africa. It was however volatile starting with a positive month in June followed by a negative August and rounded off with a very strong rally in September. The FTSE All Share index delivered a total return for the quarter of 13.3%, with more than half of the return generated in September which was up 8.7%.

The Equity fund managed to outperform its benchmark, the average General Equity Unit Trust, both over the month and quarter delivering 8.3% in September and 13.9% over the past three months.

Positive contributions to the fund's performance over the quarter came from our overweight positions in Naspers, Foschini and Old Mutual. Old Mutual performance was helped by news in the quarter that it was in negotiations to sell its 53% holding in Nedbank to HSBC. The fund also benefitted from its underweight position in the Gold sector, with the domestic gold companies being negatively impacted by continued Rand strength, despite the gold price achieving new highs in US dollars. The main detractors to performance came from our holdings in Astral Foods and Sovereign Foods where earnings remain under pressure as a result depressed chicken selling prices, again impacted by increased imports from Brazil on the back of the strong Rand.

June proved to be another negative return month in what was a disappointing quarter for equities. The Equity Fund delivered -2.5% in June and ended the second quarter down 8.7% underperforming its benchmark, the average General Equity Unit Trust, with returns of -2.3% and -6.0% for the month and quarter respectively.

The quarter was marked with renewed fears around the general health of the global economic recovery. Market commentators have expressed concern that Chinese driven demand is slowing, while simultaneously questions about the sustainability of a consumer led recovery in the US and ongoing fears about the spill over effect of the Greek credit crisis in the Euro zone has resulted in a general lack of demand to own risky assets. This has resulted in global equity investors demanding increased yields to hold shares in companies where earnings visibility is perceived to be deteriorating.

Significant detractors to the fund's performance over the quarter were Anglo American and 8illiton, which ended down 16% and 20% respectively. On the positive side, the Fund's core holdings in stocks in which we have confidence that earnings will remain resilient in these uncertain times, performed well. Woolworths, Spar, Adcock Ingram, Astral Foods and 8ritish American Tobacco all delivered positive contributions to the fund's performance over the quarter.

In what turned out to be a another volatile month for equities, the Prudential Equity Fund delivered a disappointing return of -5.5% for May underperforming the average General Equity Unit Trust return of -4.2%.

The largest detractors to the Fund's underperformance came from our overweight positions within the General Mining sector (down 9%), namely Billiton, Anglo American, Exxaro and Sentula as well as the fund's lack of exposure to the Gold sector (up 7%). Gold stocks benefitted from a higher USD gold price as global investors sought safety in the yellow metal following the sharp decline in the value of the Euro. The Euro lost ground relative to the USD as fears of a wider European fallout from the Greek credit crisis grew.

On the positive side, the Fund's recently added position in Vodacom (up 9.5%) was the largest contributor to performance. Vodacom reported a solid set of results in the month, however it was the company's annoucement of its revised dividend policy that lead to the share re-rating. The company confirmed that its future dividends would be based on a payout ratio of 60% versus the current policy of 40%. Based on the share price prior to this annoucement, the new policy meant that Vodacom was trading on a forward dividend yield of over 7%, ranking it among the top 5 highest yields of the All Share's large cap stocks.

December brought to a close an eventful year for global equity markets that was marked by initial pessimism and followed with exuberance. The JSE staged a significant rally from its mid-March low as investors re-rated shares in anticipation of a cyclical recovery in earnings. The Prudential Equity Fund ended the year up a healthy 25%, albeit falling short of the broader market's performance due to the fund maintaining an overly defensive bias during the rally.

For the final quarter the Fund delivered a return in line with that of the median General Equity Unit Trust, with positive contributions from its holding in Naspers and underweight positions in Mittal and the construction stocks. It was the fund's lack of exposure to Steinhoff and its holding in Foschini that detracted from performance over the quarter.

During Q4 2009, we continued to switch some of the Fund's defensive holdings into more cyclical stocks in which we have confidence of an earnings recovery. We increased our overweight position in Anglo American whose earnings will benefit from the rally in the underlying commodities to which it is exposed, primarily copper, coal and iron ore. In addition we added to our holding in Woolworths where we see scope for management to rectify its below industry clothing margin. These additions were funded in part by a reduction in defensive counters Tiger Brands and SABMiller.