• For the month the Small Ordinaries rose by +3.6%. Small caps were weaker than large caps (+4.4%) with rotation into larger cap stocks (from small) and equities (from fixed income) accelerating since the US Election.  In small caps a poor month for gold and dairy related stocks saw some large declines (Bellamy’s down -46%, Perseus Mining down -43%, Dacian Gold down -31%.  All not held).
  • For calendar year 2016 small caps returned +13% and large +12%. These similar returns disguise the rotation from yield stocks to cyclical stocks and from small caps to large caps we saw in the second half of the year.
  • During the month Australia posted a weaker than expected September Quarter GDP, which declined by -0.5% QoQ (+1.8% YoY). We expect the stronger than expected bulk commodity prices will help to offset a weak domestic economy in the short term enabling the avoidance of a ‘technical’ recession (for now).  However, it is telling that GDP per capita excluding resource exports has been essentially flat for the past four and a half years, highlighting the headwinds that the economy has faced despite the benefit of a substantial housing cycle, a tailwind which is likely to dwindle over the next year.


  • The sharp rally in equities and softer bond yields has reduced some of the valuation appeal in the market although we see a continuation of M&A activity as likely.
  • We are focussed on identifying value in quality businesses with strong balance sheets as we expect these to continue to outperform.