infrastructure spending (there’s at least one big wall that needs to be built), there will be more growth (Trump has promised more jobs will be created and filled), and there will be higher interest rates (because there will be growth and inflation, and Trump doesn’t support the Fed’s strategy in using interest rates to drive the economy).

This has been the immediate and obvious trend, and it has seen a reversal of some of the most powerful trends of the last few years — high-yielding investments are no longer as popular, US money is being repatriated from international assets, and growth assets are now being favoured over defensive assets.

But like I said at the beginning, this is the festive season so the important thing is to wish you all a very happy, enjoyable and safe Christmas wherever you may be. We have loved talking to you in 2016 and hope to have many more conversations with you in 2017. Best wishes and a Happy New Year.

Carmel Fisher Managing Director

It’s the festive season and I’ve been thinking rather more about food and drink lately than usual (although to be fair, they are amongst my favourite topics!). I thought these words in a Christmas recipe book were an apt introduction to our final newsletter of the year:

Without a palate cleanser, strong flavours overwhelm the palate, making it difficult to experience delicate flavours in the next course. Palate cleansers consumed between courses neutralise the palate, cleansing any lingering flavours.

I don’t know about you, but I am seriously in need of a Trump palate cleanser! The strong Trump flavours have certainly overwhelmed all others in the past month, and arguably the past year. For investors, 2016 will be remembered as the year Donald Trump was elected President and changed the world as we knew it. How he changed it will only become clear in time … there is certainly no clarity right now, even though markets are behaving as if there is.

We can only guess what might happen in the American economy, and in global markets in two years’ time, just as we can only guess who the real Donald Trump is and what he really intends to do.

Markets are forward looking and are supposed to discount future outcomes in today’s prices. But how does a market factor in absolute uncertainty? To date, markets have focused on the almost-certain outcomes like: there will be more

A Trump palate cleanser

From theUndergrowth

December 2016

A personnel updateWe farewelled Murray Brown last month and hinted at his successor. We are now pleased to reveal that our new Portfolio Manager for New Zealand Equities is Sam Dickie, who is returning with his wife and family from Hong Kong in the first part of next year. Sam has worked as an investment analyst and portfolio manager since 1998 in New Zealand, Australia, London and Hong Kong. He has covered a variety of sectors including property, telecommunications, tourism, and industrials and had a particular focus on China and India. He began his career at Credit Suisse/First NZ Capital as an analyst, and was trained by our very own Murray Brown! We look forward to Sam’s return to New Zealand, and are enjoying bringing him up to speed with our portfolios so that he can hit the ground running.

Christmas hours at Fisher FundsOver the Christmas break we will be open except for the following statutory holidays:

Monday, 26 December (Boxing Day) — Closed

Tuesday, 27 December (observed Christmas Day) — Closed

Monday, 2 January 2017 (Day after New Year’s Day) — Closed

Tuesday, 3 January 2017 (observed New Year’s Day) — Closed

From Wednesday 4 January 2017 we will be back into our normal business hours, Monday to Friday 8.30am — 5.00pm. FISHER FUNDS

FROM THE UNDERGROWTH2

Festive season quick reads

How long will you live?If you are like most people in western society, you are probably underestimating your life expectancy. Recent surveys in Australia and the UK found that people underestimated their life expectancy on average by five to ten years compared to official estimates. While this could lead to a pleasant surprise — receiving a card from the Queen would be nice — it could also mean that you outlive your savings.

One way to overcome what is known as ‘longevity risk’ is to put more money aside while you can, just in case. Or, you might like to consider investing less conservatively, so your assets are working as hard as they can for as long as they can.

Cheaper is not always betterIt stands to reason that, all other things being equal, when comparing funds, cheaper should mean better. But ratings agency SuperRatings found in its latest research covering funds in Australia, Hong Kong and now New Zealand, that low fees do not equal the best returns.

“There is often an inverse relationship between fees and investment outcomes achieved by members.”

SuperRatings’ modelling of actual returns achieved, and actual fees charged by KiwiSaver funds over a five-year period, showed that funds with the lowest fees will often provide lower investment returns than their higher fee counterparts. In fact, “whilst fee savings will deliver some benefits to members, the associated reduction in potential investment earnings is often four to five times the level of fees saved”.

That’s not to say that fees are unimportant; they do matter. But the most important consideration for any investor is the return achieved after fees and tax.

This month we thought we’d share snippets of interest from recent weeks that may prove useful conversation starters over the holiday period.

Bad things that never happenedThe global market reaction to the Trump election is the latest in a series of big false fears that haven’t come to pass. Leading up to the election, many commentators warned of a serious market correction should the worst case happen and Trump be elected US President. Before that, there were warnings of a Chinese economic hard landing, which would reverberate globally since we all rely on China to generate economic growth. After Britain voted to leave the EU in June, many warned of a big fallout impacting not only Britain and Europe but the rest of the world. Deflation was also potentially on the cards, as was a US recession. Didn’t happen. In fact, markets rallied following the Trump win, China has continued growing, Brexit is being worked through, and markets have quickly moved on, and we’ve seen inflation through higher energy prices and economic growth instead of a recession.

FISHER FUNDS FROM THE UNDERGROWTH 3

This time is differentFrom Alan Kohler’s The Constant Investor

The world is changing in so many difficult ways that it’s no wonder people are saying, in effect, “stop the world I want to get off!” Trump needs to be understood as an effect, not a cause.

I suspect that almost no one is NOT appalled by Trump; it’s just that a lot of people are more appalled at what’s happened to their lives than they are at him. There’s a lot more going on than Donald Trump can fix, or any politician or central banker for that matter (or even get their head around I’d suggest).

It’s often said that the most dangerous four words in investing are: “It’s different this time”. That phrase is only dangerous when used to justify inaction. When the phrase is used to support caution, it’s not dangerous at all; it’s prudent.

This time is very, very different, for a number of reasons:

1. Global debt is the highest in history

2. Population growth is declining at the fastest rate in history

3. The most profound technological changes in history are happening

4. There is the greatest movement of people around the globe — refugees, migrants, tourists — that the world has ever seen

5. At the same time, the latest burst of globalisation seems to be ending

6. China is once again the world’s largest economy, 200 years after falling behind the US at the time of the Opium Wars

7. Sexual norms have broken down — not only can we now partner with the same sex, we can BECOME the opposite sex

8. Life expectancy is the greatest it has ever been, and still rapidly increasing

9. Social media has produced a cacophony of opinions, mostly banal.

Obviously not all of these things are directly relevant to investors, but I think all of them contribute to the spot we’re in.

Beware hot stocks … they can burnFrom Motley Fool Australia and our international team

Shares of Bellamy’s Australia have been crunched, down 43% within minutes of the ASX’s open last Friday (2 Dec 2016). As one of Australia’s premier producers of infant formula to the large markets of Asia, Bellamy’s announced a downgrade to its Chinese ambitions as a result of “temporary volume dislocation due to regulatory changeover.”

Bellamy’s has enjoyed a tremendous run-up in share price over the past 24 months, along with a2 Milk Company, as both companies sought to satisfy the insatiable thirst of China’s middle class parents for quality infant formula.

But while Bellamy’s says the Chinese opportunity remains “vast”, regulatory concerns could put a ceiling on that blue sky potential.

Specifically, Bellamy’s said that the recent measures put in place by Chinese authorities have forced a huge amount of supply into the market by competitors who are unlikely to meet the tougher regulatory requirements. “Brands that are unlikely to gain registration are liquidating inventory at discounted prices, which impacts both imported brands such as Bellamy’s and the market overall.”

Investors holding Bellamy’s shares would be bitterly disappointed by Friday’s news.

The price of Fisher Funds’ portfolio holding, Mead Johnson, did not react to Bellamy’s announcement. While it also operates in the Chinese infant formula market, it is geographically diversified with China accounting for around 40% of profit historically. Mead is less exposed to the ‘grey channel’ and is focused more on the premium/super-premium end of the market.

FISHER FUNDS FROM THE UNDERGROWTH4

Your portfolios — What’s been going on since we last spoke?

Swashbuckling corporate raiders vs minority shareholdersBy Ashley Gardyne, Portfolio Manager

The New Zealand share market, once characterised by swashbuckling corporate raiders, lax financial regulation and limited protection for minority shareholders, has thankfully come a long way. Introducing the Takeovers Code in 2001 was a significant step in the right direction and a real gain for minority shareholders.

However, a loophole still exists for corporate raiders to get control of listed companies on the cheap via partial offers. Partial takeover offers are often controversial and can allow a bidder to gain control (50.1%) of a listed company without allowing shareholders to cash out all of their shares at the offer price. Minority shareholders can be left with a residual shareholding in a company with lower liquidity that is controlled by the corporate raider: not a great place to be.

Abano Healthcare has recently received a partial takeover offer from Healthcare Partners at $10 per share, which would shift their shareholding from 19.02% to 50.01% and give them control of the business. This is the fourth takeover offer associated with Abano Healthcare since 2007.

How have our International stocks reacted to Donald Trump?By Roger Garrett, Senior Portfolio Manager, International

Financials were the worst performing S&P sector through to October but their strong November performance (the best since 2011) is on the expectation that bank profitability will improve as interest rates rise and the difference between bank borrowing levels and bank lending levels increases therefore improving bank margins.

Industrial companies have naturally responded well to Trump’s intention to invest in infrastructure which is expected to boost their earnings growth prospects.

Our portfolio was geared more towards quality companies that had secular growth drivers but higher valuations. These types of stocks have clearly been used to fund investment into newly-popular sectors that are expected to perform better in a higher growth environment.

Time will tell as to whether this market rotation will hold and benefit the ‘hot’ sectors as well or as quickly as the market is hoping. We continue to have high conviction in our long term growth stocks; any improvement in US economic growth and inflation will benefit our businesses. All boats will be lifted with a rising tide, but we do not intend to participate in sector-hopping in anticipation of Trump’s policies. The President-elect’s promises may not eventuate or they may be reworked; if the tide falls, we want to be sure we’re in the right boats!

Why so many takeover offers? We think it’s because the bidders are sophisticated investors who see the same significant value that we see.

Abano is a rare New Zealand business that has both a strong track record of creating value for shareholders and a long growth runway ahead. It’s a well-run business rolling out its proven corporate dental model across the Tasman (Lumino in New Zealand/ Maven in Australia). The sale of its audiology business for $32m in June provided it with further firepower to pursue its goal of attaining a 10% share of the $11 billion trans-Tasman dental market.

Healthcare Partners have already indicated they intend to change Abano’s strategy and limit its growth; an undesirable outcome. We would prefer Abano to remain listed and pursue their existing strategy unencumbered. Watch this space.

The wind of change is certainly blowing through the US share market following Donald Trump’s presidential election victory.

While it is still difficult to draw firm conclusions given the vagueness of many of his policies, the market quickly seized on his intention to cut personal and business taxes, reduce bureaucracy and boost fiscal spending on infrastructure. These policies are interpreted as pro-growth and likely to cause inflation.

The response of the US share market was dramatic following the election. Investors embraced

the new leadership with a massive rotation out of stocks that are

perceived to suffer under Trump (e.g. technology

and e-commerce businesses that seek to hire global talent and could be vulnerable to protectionist policies),

and into previously underperforming sectors

such as financial and industrial stocks.

Highlights and lowlights

Our best performing New Zealand stock in November was Mainfreight (up 8.6%) having released strong first half year results that highlighted continued market share gains and solid margin improvement. We are pleased with the operating performance of our portfolio companies during the recent interim result and ASM season, with most company results and outlook statements in line with our expectations. Fisher & Paykel Healthcare fell 7.7% during the month as the market reacted to its patent dispute with competitor ResMed. We see this reaction as overdone and have used the opportunity to add to our position.

In November, all sectors were down on the Australian market except the Mining, Energy, Utilities and Financials sectors. Even within these sectors, generally the weakest companies with the most volatile earnings were the strongest performers. While our preference for quality companies typically keeps us out of cyclical sectors and companies with volatile earnings, increasing the portfolio exposure to Australian banks, and adding mining heavyweight Rio Tinto to the portfolio, contributed positively in yet another month we would characterise as a “low quality rally” in Australia. These gains were offset by a loss on Vocus Communications when its earnings guidance disappointed investors. This left the portfolio flat over the month, lagging a strong Australian market.

The United Parcel Service was the poster company for the portfolio last month. We think a Trump presidency heralds a potential move from a low growth and low inflation environment to one where expected tax cuts and increased fiscal spending will boost both growth and inflation and as a consequence lift interest rates. This shift has been particularly painful for the portfolio in the short term as investors have shifted out of technology and other solid growth sectors (Cerner Corporation and STRATEC Biomedical were our largest negative contributors in November) into more economically sensitive sectors such as financials and industrials sectors where we have low weightings. We have pivoted our portfolio a little towards these sectors and will continue to opportunistically add more where we find strong STEEPP ideas.

Global property and infrastructure stocks declined in November as the hunt for yield continued its recent reversal. This was driven by increased investor focus on a potential Fed interest rate hike, combined with an expectation that the Trump presidency may result in higher inflation and interest rates. US railroad operators, Union Pacific and Norfolk Southern, were our best performers in the month, supported by an improving outlook for transport volumes and the US economy. Our communications tower operators Crown Castle and American Tower were the weakest performers, driven by views that Donald Trump’s administration will be more supportive of mergers between their customers; the US telecom operators.

The Income Fund continues to weather this fixed income market turbulence well when compared with both local and global bond indices. We have long held a conservative view towards interest rate exposure and this stance has helped shield the fund from this recent bout of market weakness.

A near-term boost to sentiment (from the Trump victory) and a mild acceleration in economic activity and inflation caused global bond yields to rise (price to fall) further in November. This swift and all-encompassing bond market sell-off has offered investors little in the way of places to hide. However, as is typical with periods of indiscriminant selling, attractive opportunities are now beginning to present themselves.

For a copy of any of our product disclosure statements, visit our website fisherfunds.co.nz or phone 0508 FISHER (0508 347 437) The information and any opinions herein are based upon sources believed reliable, but the Company, its officers and directors make no representations as to its accuracy or completeness. All opinions reflect our judgement on the date of this report and are subject to change without notice. The information contained in this publication should not be used as a basis for making an investment decision about any particular company. Professional investment advice should be taken before making an investment. Past performance is not a reliable guide to future performance.

A snapshot of the key factors driving the performance of markets and your funds last month

Biggest contributors/detractors

Returns (after fees and before tax) Unit Price $ 1 Month 1 Year 2 Years* 3 Years* 5 Years* 7 Years*Since Fund Inception*

New Zealand Growth Fund 6.7957 -1.2% 13.3% 10.2% 10.5% 15.7% 13.0% 11.0%

Australian Growth Fund 3.0688 -0.2% 3.2% 8.3% 3.6% 7.6% 6.1% 6.5%

International Growth Fund 1.5268 -1.5% -6.2% 3.6% 4.2% 7.9% 4.8% 4.8%

Property & Infrastructure Fund 1.9306 -0.6% 5.0% 5.8% 10.3% 11.1% 9.5% 10.8%

Income Fund 1.0257 -0.9% 4.3% 4.8% 5.0% 5.3% N/A 5.1%

KiwiSaver Growth Fund 1.7490 -0.4% 4.2% 7.0% 6.9% 10.6% 8.2% 6.3%

KiwiSaver Conservative Fund 1.4715 -0.9% 4.1% 5.1% 5.6% 6.6% 5.6% 5.3%

* Annualised returns

Market Indices 1 Month 1 Year 2 Years 3 Years 5 Years 7 Years

S&P/NZX 50 Index Gross -0.9% 13.1% 12.8% 12.9% 16.1% 12.0%

90 day bank bill 0.2% 2.6% 3.0% 3.1% 2.9% 2.9%

S&P/ASX 200 Index (NZD 70% hedged)* 2.4% 8.6% 7.1% 7.5% 8.8% 6.0%

S&P PMI/EMI Blended Index (NZD 50% hedged)** 3.1% 2.2% 9.9% 8.6% 12.4% 9.9%

New Zealand Government Stock Index -1.4% 4.2% 5.4% 6.0% 4.3% 5.6%

* S&P/ASX Small Industrials Index (Inception to 31/1/2012), S&P ASX 300 Industrials ex top 20 70% hedged to NZD (1/2/2012 — 31/3/2015), S&P/ASX 200 70% hedged (1/4/2015 to now)** Global Small Cap Index (Inception to 31/3/2015, S&P PMI/S&P EMI 50/50 blend 50% hedged to NZD (1/4/2015 to now)

Further information about all of our funds (including a full breakdown of the portfolio holdings, investment team profiles and current fund fact sheets) can be found at fisherfunds.co.nz.

Fund facts (as at 30 November 2016)

New ZealandShare Price

ChangeContribution

to Return

Mainfreight Limited 9% 0.9%

Fisher & Paykel Healthcare Corporation Limited

-8% -0.7%

Freightways Limited 5% 0.4%

Fund performance

AustraliaShare Price

ChangeContribution

to Return

Vocus Communications Limited -27% -1.0%

Ramsay Health Care Limited -3% -0.4%

Aconex Ltd -18% -0.3%

InternationalShare Price

ChangeContribution

to Return

Cerner Corporation -15% -0.4%

STRATEC Biomedical AG -18% -0.4%

United Parcel Service, Inc. Class B 8% 0.3%

Property & InfrastructureShare Price

ChangeContribution

to Return

Union Pacific Corporation 16% 1.0%

Norfolk Southern Corporation 15% 0.6%

American Tower Corporation -13% -0.5%

Fisher Funds Management Limited Postal Address Private Bag 93502, Takapuna, Auckland 0740 | Freephone 0508 FISHER (0508 347 437) Telephone 09 445 3377 | Facsimile 09 489 7139 | Email enquiries@fisherfunds.co.nz | Website fisherfunds.co.nz

Biggest holdings New Zealand

Mainfreight Limited 11.9%

Ryman Healthcare Ltd. 9.9%

Fisher & Paykel Healthcare Corporation Limited

9.4%

Cash 2.9%

Top 10 holdings 69.8%

Australia

Ramsay Health Care Limited

6.8%

CSL Limited 5.4%

Brambles Limited 5.3%

Cash 12.2%

Top 10 holdings 57.0%

International

Alphabet Inc Cap Stock Class A

5.1%

Mastercard Inc-Class A 4.5%

Paypal Holdings Inc 4.0%

Cash 7.4%

Top 10 holdings 43.4%

Property & Infrastructure

Union Pacific Corporation

6.7%

Flughafen Zurich Ag 6.6%

Meridian Energy Limited 5.4%

Cash 10.0%

Top 10 holdings 55.4%