After having placed much emphasis on what the US Federal Reserve was likely to do at its next meeting (consensus expected tapering of quantitative easing of $10 to $15bn), markets were left confused when it was announced that the Fed would not be tapering in September. To reiterate our previous comment, "Thankfully, we are committed to long-term investing and ensuring that we make the best decisions for our clients with an investment horizon of 3 to 5 years. Thus, our focus remains on investing in high quality companies and asset allocation that will yield superior returns for our clients over the long term," the Fed's decision to not taper was somewhat of a non-event for the Efficient Worldwide Flexible Fund.

Now, at the time of writing, news headlines are citing "deadlock". Midnight tonight is the deadline for an agreement on the ObamaCare (the Affordable Care) Act. As we've seen in recently with similar events, both the Republicans and Democrats are holding out to the very last minute in a delicately poised game of 'cat and mouse'. An even bigger deadline looms on 17 October when an agreement must be reached regarding the raising of the US debt ceiling.

There will always be an element of uncertainty in financial markets. Over the short term this uncertainty can cause extreme volatility and therefore, making speculative decisions is tantamount to placing a bet at a casino. However, during these times of uncertainty, markets can be irrational, presenting a long-term investment opportunity. A great example of this is the rand/dollar exchange rate. After having traded at R9.80 before the announcement of the Federal Reserve's tapering decision, the rand quickly strengthened to R9.54 after it was announced that tapering was not going to take place. Now, at the time of writing, (30 September), the rand is actually trading at R10.14 to the dollar. Making a short-term call would have either made or lost you a lot of money. Over the long term however, it is very plausible to expect the rand to depreciate against the US Dollar.

Other than taking some profits on both Want Want China and Inditex (the holding company of Zara) as they both reached their target prices, the Efficient Worldwide Flexible Fund remained mostly unchanged during the month. Asset allocation is currently as follows: 75.24% equities, 3.67% property, 5.22% bonds, and 15.88% cash. The fund's offshore holdings is 77.06% and we believe that this allocation best reflects our long-term investment outlook.

Financial markets were in disarray during June after it became apparent that the United States Federal Reserve may possibly start tapering off quantitative easing before year-end. The net effect of this will cause US bond yields, which have been artificially suppressed since the first round of quantitative easing introduced in 2009, to rise again. As bond yields rise, bond prices fall and the relative attractiveness of different asset classes change. Due to the forward looking nature of markets, it should come as no surprise that they responded aggressively to comments made by the US Federal Reserve. The US 10 Year Treasury Bond Yield increased by about 50 basis points, which in turn put bond prices under tremendous pressure.

The relative attractiveness of emerging markets was also questioned, placing downward pressure on their currencies as investors withdrew money from emerging markets to reinvest into developed markets. The rand was no different, depreciating from R10.07 to a high of R10.32 relative to the US Dollar.

During the month the S&P 500 Index TR (-2.64%), MSCI World Index PR (-3.89%), All Share Index TR (-5.70%) Citi World Government Bond Index (-1.89) and Beassa ALBI Index TR (-1.56%) all showed negative returns. The Efficient Worldwide Flexible Fund returned -4.52%. The fund's top performing equities included Brait (18.32%), Shoprite (5.27%), Rebosis (1.70%), Pinnacle (4.83%) and Cashbuild (13.68%) whilst the worst performing equities included Anglo American (-18.42%), Samsung Electronics (-14.83%), BHP Billiton (-13.77%), Clover (-9.76%) and International Business Machines (-9.34%).

Asset allocation remained fairly stable during the month. As at the end of June, our asset allocation was as follows: 70.02% equities, 4.00% property, 7.85% bonds, 2.17% commodities and 15.59% cash. The Efficient Worldwide Flexible Fund remains overweight offshore, with a total exposure of more than 77.00% across the different asset classes.

With March coming to an end so does the first quarter of 2013. Despite numerous "threats" present in financial markets, it was an exceptional quarter for equities - particularly for offshore investments if one takes into account the currency move. Over the quarter the South African Rand depreciated from 8.48 to 9.22 (an 8.73% depreciation) relative to the US Dollar. This coupled with a return of 10.03% for the S&P 500 Index means that if you had invested 100.00% of ZAR in the S&P 500 Index, you would have earned a return of 19.63% in just three months. Whilst the Efficient Worldwide Flexible Fund relies on a far more diversified approach to investing, with investments in numerous asset classes across different countries, our offshore preference of 70.00% contributed to the Efficient Worldwide Flexible Fund returning 11.27% for the first quarter.

Having just completed our House View outlook for the second quarter, there are a few points that we would like to highlight. Firstly, our rand outlook is for an exchange rate of 9.50 to the US Dollar by year-end, but we expect the rand to go through a "stronger" period mid-year providing that the South African current account deficit is in line with expectations and wage season negotiations are uneventful. Thereafter, we foresee US Dollar strength (as opposed to rand weakness) moving the exchange rate in the direction of 9.50 by year-end. Additional risks facing the exchange rate include potential Eskom power outages, downgrades to South Africa by rating agencies, and political instability during wage negotiations. Positive risks include much of the negative factors facing the rand already being priced into exchange rate and the global search for yield supporting the currency.

Our view on Cyprus is that whilst the actual event is minor at this stage, the biggest threat is the signal it sends out to other EU countries and the tough job the ECB will have in assuring the likes of Spanish, Italian and Greek investors that their money is safe in bank deposits. Other major themes include: our reaffirmed view that the US Federal Reserve is likely to keep quantitative easing in place well into 2014; and that central banks across the globe are likely to favour growth at the expense of inflation threats over the short-to-medium term. In line with this, we do not expect the South African Monetary Policy Committee to hike interest rates during 2013.

Our overall assessment of financial markets is that its current state is most likely the best scenario, with a higher weighting being placed on the basis of conditions worsening rather than improving. Europe remains at the centre of market risk. We also see little opportunity in South Africa at this stage. One area we did identify as an ongoing opportunity is offshore equities and we will continue holding our overweight bias. As at the end of March, our asset allocation was as follows: 74.21% equities, 5.59% property, 4.91% bonds, 4.75% commodities and 10.54% cash. The Efficient Worldwide Flexible Fund remains 70.00% invested offshore and this percentage is likely to increase in the coming months.