The past month was an eventful one for financial markets, with all eyes on what the US Federal Reserve was going to do at its September meeting. Consensus was that the Fed was likely to taper quantitative easing by $10 - $15bn. When it was announced that the Fed would not be tapering in September, markets were caught off guard.

Momentarily, markets changed direction to the status quo seen before tapering was announced in May 2013. This included preference towards high yielding shares and bonds, emerging markets and a weaker US dollar (stronger rand). As financial markets digested the news, markets quickly normalized, and are now nearly back to pre-announcement levels.

Predicting the Federal Reserve's next move is, thankfully, not what we consider to be prudent management of our investors' wealth. We remain committed to long-term investing and ensuring that we make the best decisions for our clients over an investment horizon of 3 to 5 years. Our focus is on asset allocation and selection of high quality companies that, over time, will produce superior risk-adjusted returns.

Our long-term outlook continues to favour equities over bonds. We also believe that developed market equities are likely to outperform emerging market equities. Whilst the rand may momentarily benefit from various 'deadlines' facing the US economy, our long-term outlook for the rand is negative. The rand, along with other emerging markets have benefited from "cheap liquidity" and the search for higher yields since the announcement of the first quantitative easing program in 2009. Now, with quantitative easing likely to come to an end, some form of a reversal is expected. The details of how and when tapering is going to take place is anyone's guess but one certainty is that quantitative easing cannot continue indefinitely. We therefore focus on the long-term effects of tapering as opposed to the 'when and how'. Such speculation is certainly not a prudent approach to investing our clients' money.

With the above in mind (and within the guidelines of Regulation 28 of the Pension Funds Act), the Efficient Balanced Fund is overweight offshore equities (18.87%) and underweight bonds (10.45%). Cash is currently neutral at 24.61%. Overall, the fund is overweight offshore at 22.98%. This asset allocation best reflects our long-term view for financial markets.

For some time market participants have been calling for the great rotation out of bond funds into equity orientated assets as the unprecedented stimulus and flush liquidity around the world artificially suppress yield bearing instruments. During June we had a quick glimpse of how abruptly such a rotation can happen. Bond yields around the world spiked aggressively followed by some emerging market equity outflows, last seen during the great recession. The trigger was provided by the US Federal Reserve signaling that it will consider tapering quantitative easing under certain conditions.

To add 'fuel to the fire', China experienced an interbank lending crisis, putting pressure on hard commodity producing equities. China is also relaying to the market that they are willing to accept lower growth rates to help the country's transition into a consumption driven economy. These factors will permeate through the market in the coming months and may add additional volatility as market participants try to price new news flow. In South Africa we face the next round wage negotiations among the mining community that will commence in July. It is believed that a special workshop will be held to educate union members about the harsh economic realities facing South African mines. We are hopeful for a realistic and quick resolution to get South Africa back to a globally competing country.

The following indices were measured in total return (in ZAR) over the month, namely: All Share TR (-5.70%), SA Listed Property TR (4.38%), Beassa ALBI (-1.56%) and the MSCI World GR (-3.71%). The Efficient Balanced Fund returned -3.44%. Looking at equity performance for the month, the fund's top performing shares included: Brait (18.32%); Cashbuild (13.68%) and Shoprite (5.27%) whilst the worst performing shares included Anglo American (-18.42%); Gold Fields (-17.37%) and African Rainbow Minerals (-16.80%).

During June the Efficient Balanced Fund maintained its asset allocation except for reducing domestic equities slightly in favour of some offshore equities. Offshore equities are still our preferred asset class and are forecast to deliver adequate growth. The Balanced Fund has very little exposure to sovereign bond duration and we prefer to stay in price-protected, yielding instruments. The fund is positioned to maintain a healthy growth profile with underlying income to stabilize volatility.

World markets performed surprisingly well during the first quarter of 2013. The S&P500 PR returned 10.03%, FTSE 100 8.71% and the Nikkei 225 posted an outlier of 19.27% (all in local currencies). It is not unexpected to see that the markets that implemented unconventional measures to boost their economies showed the best resilience against a muted economic recovery. It is clear that the correlation between the US Treasury yields and the S&P500 returns have broken down and both remain strong. This explains the artificially managed economy that currently presides around the world. Notwithstanding the fears surrounding the unprecedented stimulus in the US, it seems to be 'bearing fruit', with 68% of companies beating expectations during the fourth quarter 2012 earnings season.

The All Share Index managed 1.56% (in ZAR) but the highlight remains the weakening rand that lost 8.1% against the dollar. This further stokes the fear of inflation. The SA trade deficit in January of R 24.5bn shocked the marked and weakened the rand by 20 cents on the day. Subsequently, the trade deficit reversed in February to R 9.5bn, helped by higher mineral exports. Other SA specific issues, namely lingering coal strikes, softer retail and car sales, caused the rand to lose more value against the dollar than other emerging market currencies and remains a core risk for South African investors.

The following indices were measured in total return over the month: All Share (1.19%), SA Listed Property (3.28%), Beassa ALBI (0.20%) and the MSCI World (4.70%). The Efficient Balanced Fund returned 2.14%. Looking at equity performance for the month, the fund's top performing shares included Oceana (12.99%); Target Corp (11.16%) and SAB Miller (9.28%) whilst the worst performing shares included Anglo American (-8.05%); MTN (-8.04%) and Vodacom (-7.76%).

During February we lightened domestic equity on full valuations, but we managed to pick up other quality companies due to a sharp sell-off in March. Both Shoprite and Vodacom were introduced into the Efficient Balanced Fund. The offshore equity component protected the fund against a sharp decline in the rand against the US dollar. Our base case is for further rand weakness with short bouts of strength and we will use any opportunity to accumulate offshore assets on valuation and hold this at the maximum permissible amount of 25%.

The Efficient Prudential Fund will change it's name to Efficient Balanced Fund, effective from 01 January 2013