The FTSE/JSE All Share Index ended the quarter down 5.8% and against this backdrop the Prudential Equity Fund declined 5.6% but disappointingly under performed the total return of the average General Equity Unit Trust which closed the quarter down 4.6%.

A key feature of the past quarter has been the heightened risk aversion of global investors. This resulted in global equity markets, including the JSE, declining, while safe haven assets such as the gold price, us treasuries and currencies such as the Swiss Franc, all achieving new highs. The markets fear centered on slowing global growth, particularly in the wake of the ongoing European sovereign debt crisis.

Within our domestic equities, we witnessed a significant out performance of those companies with perceived defensive earnings such as British American Tobacco, Life Healthcare, Vodacom and Tiger Brands. While those companies with more cyclical earnings such as Anglo American, Sappi, Lonmin and Investec all under performed over the quarter by a significant margin. The Equity Fund entered this past quarter with exposure to a number of these defensive counters.

The key detractors for the Equity Fund this quarter was the underweight position in gold counter Anglogold in addition to our overweight positions in global mining stocks Billiton ,and Anglo American as well as negative contributions from our holdings in Investec and Mondi. Offsetting these detractors were positive contributions from the Fund's holdings in Woolworths (up 20%), British American Tobacco (up 16%), Vodacom (8%) and small cap document storage company Metrofile (up 16%).

The FTSE/JSE All Share Index ended the month of June down 2.03%. The fund outperformed its benchmark, the General Equity Unit Trust, by 0.76% over the month despite being down 0.93%. World equity markets generally were adversely affected by fears that the global recovery might be stalling. Global investor appetite for risk decreased on the back of fears over a possible Greek government default. The market has recovered somewhat subsequent to votes supporting the austerity measures in Greece.

The underweight position on gold contributed positively to performance as gold shares came under pressure despite the dollar gold: price holding above $1500. Exxaro, a coal and iron ore miner in which we have an overweight position, has benefited from the strong: run in iron ore prices and was up 10.51 % for the month. The overweight position in Imperial returned 4.09% on the back of a trading I update released during the month confirming solid operating earnings growth for the year ended June 2011. Imperial's key operations are in logistics and vehicle importing and retailing, where they are benefiting from consumer recovery and continuing growth in new car: sales. We believe that the domestic economy still has room to grow on the back of future job creation.

The Prudential Equity Fund ended the month in positive territory, albeit only slightly up with a return of 0.5%, this was in line with the performance of the FTSE/JSE All Share Index but below that achieved by the average General Equity UnitTrust which ended the month up 1 %.
March 2011 turned out to be an eventful month with escalating unrest in the Middle East and North Africa, the rebel war in Libya culminating foreign airstrikes and on top of this the Japanese earthquake and tsunami which resulted in the ongoing nuclear disaster at Fukushima Nuclear Power Plant. As a result, it comes as no surprise that global equity markets were quite volatile during the month with the All Share Index down over 5% at one point.

Positive contributors to the Fund this month came from our overweight positions in Exxaro +8.5%, Foschini +7.8%, Coronation +7.6% and Woolworths (+6.7%). However these positive contributions were offset by holdings in Naspers (-9%), Anglo American (-6%) and Adcock Ingram (-5.2%). In addition, the strong performance of MTN over the month following the release of their FY10 results and announcement of an increased dividend payout, also detracted from the Equity Fund's relative performance given that the fund is underweight MTN relative to the peers. The fund continues to maintain a preference for Vodacom over MTN in the near term, given that we anticipate a further increase in the dividend payout policy of Vodacom in the coming financial year.

With the South African equity market having delivered a healthy 32% total return in 2009, there was much scepticism at the beginning of 2010 about the likelihood of achieving another year of acceptable returns. At the halfway mark, it appeared the pessimists were having their way with the FTSE All Share Index down 4% to the end of June 2010 and lots of debate about the health and strength of the global recovery. These fears however appeared to be short lived and the market once again embraced risk with the JSE ending the year 2% below its 2008 peak. This meant the Index had delivered a return of 24% for the second 6 months, bringing the total return for the year to 19%.

Against this backdrop, we are pleased to report that the Prudential Equity fund achieved a total return for 2010 of 18.9%, which exceeded the 18% total return achieved by average unit trust in the General Equity category. The fund, like the broader market, enjoyed a particularly strong performance in the second half, up 22.5%, outperforming the peer group by over 2%.

The star performances in the Equity Fund this year came from our holdings in retailers, Woolworths, Foschini and Spar, as well as our overweight position in financial services company, Coronation.

Despite the strong market rally in the second half of 2010, the valuation does not appear too demanding. We will however caution that certain sectors are trading at significant premiums to the overall market, particularly the consumer orientated shares. While we don't foresee scope for a significant re-rating of the overall market in 2011, we are confident that through a combination of dividends and earnings growth the Prudential Equity Fund can achieve another year of positive returns.