The month of September was another positive one for the JSE All Share Index, ending the month 4.27% higher. The Efficient Equity Fund returned 3.51%.

Financial markets are enveloped in a tug of war: On the one hand is the prospect of tapering (reduction in stimulus) and on the other hand improving growth prospects - particularly in the developed world (the US and Europe). The market expected the US Federal Reserve (Fed) to initiate the tapering program at its recent September meeting. Communications and economic guidelines that were set out by the Fed at its May meeting appeared to suggest that tapering was imminent. The market was surprised by the decision not to taper and the bond market was certainly 'caught on the back foot' with yields retreating from 2.85% to 2.69% post the Fed announcement.

Equity markets initially reacted positively, the market quickly discounting that more liquidity for longer was going to support US equity and global equity markets. We think that the Fed missed a valuable opportunity to reduce stimulus. In our opinion it seems that the Fed's communication policy has lost credibility and transparency.

With a US government shutdown looming, debt ceiling negotiations to follow and the continued prospect of stimulus for longer, equity markets seem to be favouring the prospects of increased liquidity. The tug of war for now seems to be on the side of liquidity and the continued paralysis of the US government will only prolong the need for stimulus.

Whilst vigilant of these macro scenarios unfolding we remain focused on what we can control and that is identifying high quality businesses at attractive valuations. We continue to position our portfolio to participate in positive equity markets while being defensive to macro risks.

The month of June proved to be a great example of how volatile markets can be in the short term. The key driver of this volatility was borne from a dramatic rise in American treasury rates, prompted by the Federal Reserve Bank's announcement of an 'earlier than expected' reduction of monetary easing - the key support which has catalysed the positive market movements of late. This meant higher yields were earned in the US, resulting in a withdrawal of capital from most emerging markets - South Africa being one of them.

The Efficient Equity Fund maintains its positioning of underweighting domestic equity and overweighting offshore equity within our mandate. Within our sector allocation, we have reduced our exposure to listed property over the month as this sector remains at risk to further withdrawals of capital. We also took some profits on our technology stocks, namely Pinnacle Technology Holdings and Microsoft, and reduced our overweight exposure to the sector.

Due to the sell-off in emerging markets, as mentioned above, we took the opportunity to buy Jeronimo Martins - a stock we've admired (and owned in the Worldwide Flexible Fund) for some time but haven't had the opportunity to buy into. The company is domiciled in Portugal but its key growth has been in Eastern Europe as a fast-growing, food retailer with a strong balance sheet and a quality management team. The stock also provides a hedge against a depreciating rand.

The top contributing stocks over the month were Brait SE (18.32%) and Pinnacle Technology (4.83%). The worst performing stocks over the month were Anglo American (-18.42%) and BHP Biliton (-13.77%).

The benefits of portfolio positioning have resulted in the Efficient Equity Fund outperforming its benchmark by 1.28% over the month. Protection of capital in downturns (as seen in June) remains a critical component of our Quality investment philosophy and process. The emphasis that we place on capital preservation, we believe, ensures a positive compounding effect over the longer term. We continue to be vigilant of market opportunities during these volatile periods.

World equity markets cut a steady pace over the first quarter of 2013. The MSCI World Index returned 7.87% versus -1.57% for the MSCI Emerging Markets Index. The S&P500 returned 10.03%, breaking through its previous high in October 2007. Resilient market sentiment, driven in part by improving macro data and Ben Bernanke's sustained asset purchase policy, helped to quell investors' concerns regarding continued European woes. The JSE All Share TR index posted a 2.48% return over the quarter, despite Industrials and Financials posting 6.31% and 5.96 % respectively (Resources returned -5.96%, thus dragging the index lower). The Efficient Equity Fund returned 4.67% over the period.

Going into the first quarter, the fund remained overweight Industrials and neutral Financials, whilst maintaining its underweight position in Resources. From a top-down perspective, Financials (in particular Real Estate and Insurers), Consumer Staples and Information Technology were significant contributors to the outperformance of the fund relative to the ALSI. Furthermore, the fund's underweight position in Basic Materials and Telecommunications further added to the fund's Alpha over the period.

Bottom-up analysis over the period indicates that stock-picking generated the highest return, followed by additions and exclusions. However, underweighting certain stocks in the folder (the fund owns the stock, but is underweight relative to the Index) led to underperformance. The top active positions (overweight positions relative to the All Share Index), namely Pinnacle Technology, New European Properties and Discovery returned 19.76%, 21% and 25.81% respectively, whilst Clover and Brait were down 2.97% and 5.28% respectively.

Looking ahead, we will continue to take advantage of opportunities to add to existing holdings during market pullbacks. We are cognisant that the local All Share index is trading at lofty levels, hence our cautious approach despite 'pockets' of value. Furthermore, given the fund's mandate and appealing valuations, we will add to its offshore exposure.

Equity markets over the past year managed to shake off what was perceived to be an extremely uncertain period given US macro data, Chinese economic growth and European contagion. Despite these hurdles, global equity markets put in a stellar performance with the S&P500 TR, MSCI World GR and JSE All Share TR Indices recording 21.91%, 22.47% and 26.68% respectively. What is more confounding is the fact that 2012 was a year filled with negative sentiment. Volatility, as measured by the VIX index, posted an average reading of 18 - the lowest reading since 2006!

The JSE All Share index return was led by Industrials (44.54%), Financials (38.08%) and Resources, a paltry (3.1%). On balance throughout the year, the Efficient Equity Fund remained overweight industrial businesses, neutral financials and underweight resources. The sector allocation was effective, as the fund returned 23.98%.

The fund's active positions in industrials such as Brait, Aspen (recently down weighted), Nepi, Pinnacle Tech and Imperial contributed significantly to the fund's performance (85.29%, 74.80%, 64.91%, 70.74% and 66.93% respectively). Counters that detracted from performance over the year include Aquarius platinum (-62.52%), Astral Foods (-12.49%) and Anglo American (- 10.37%). We subsequently sold Aquarius on the back of heightened concern regarding the uncertainty surrounding its Zimbabwean operations and up weighted our Anglo position, given its value proposition and change in CEO.

Key themes that we will continue to monitor include both the resolution of the US fiscal cliff and the improvement in Chinese macro data (given the recent "changing of the guard"). As always, the fund will continue to seek opportunities to invest in quality businesses.