End of month
Economy and Indices
The AU market closed the year + 6% higher than the start of 2017.
Including dividends and franking credits, the total return edged out +10%.
Most of the gains for the year were achieved in the month of October.
Leading Sectors This Month
Metals and Mining +10.1%
Segments this Week
The group of the smallest companies, Emerging Companies, are up +10% this month.
Distant second place is the group of the next largest companies +5% this month.
Continuation form October:
Resources are still leading, namely small-cap resource +11% for the month – still the strongest of any AU index we follow.
Mining and Energy companies have taken pole position on the market and are the only Industry moving with such conviction.
Outlook (from September 2017)
AU has been dominated by the ‘Big Nine’ names (Big 4 Banks, BHP, RIO, Wesfarmers (Coles), Woolies and Telstra) for about two decades. This is coming to an end, and I believe it started in May 2015.
In the coming years our market will be more diversified, like the rest of the worlds's developed markets. The best examples are from companies like Domino’s, Bellamy’s, Blackmores, and Aristocrat which have quickly progressed from small-caps, to some of the largest mid-caps in AU.
I believe there will be many more companies like these Market Darlings over the next three to four years.
This progression should be slow, and it would not appear that the Big Nine are ‘losing’ against the rest of the market, but they will slowly be left behind as they receive more regulation, competition and disruption as the rest of the economy grows.
Maybe these Big Nine will be seen in the same light we see Newscorp and Fairfax today – they were giants, they didn’t do anything wrong, but they just got left behind in the old economy and now no-one wants them.
Considering that, I’d be more inclined to cull the exposure to Banks and the Big Nine and either buy a diversified approach to the small/mid-cap growth engine (Domino’s etc) or use the Capital from the Big Nine for more Market Darling trades identified in each episode of Talking Stock.
For insights into how to use these trends and themes within a portfolio, watch The Portfolio Series here.