The Small Cap index is lying to you with Andrew Mitchell
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Why does the small‑cap index appear calm while underlying volatility is high?
Looking out at the ocean, it looks really calm, but underneath there's monsters, sharks, crocodiles everywhere. That's kind of what happened in small caps in 26. In the AI space, what used to happen was the hyperscalers in the US would lift their capex and the market would reward them and the share price would go up. That reversed. You lift your capex, your share price goes down. So there's a big question mark there.
Welcome to another episode of Equity Mates, a podcast where we explore what's possible in the world of investing. If you've just joined us for the first time, a huge welcome to our community. My
name's Bryce. And I'm Ren. And today we are talking all things small caps. We're talking to a manager who looks at both the Aussie small cap market and the global small cap market and has made a fair bit of money along the way.
Joining us in the studio today is Andrew Mitchell. Andrew is the founder and senior portfolio manager at Afea. And yes, they focus on all things small caps, global and here in Australia. And full disclosure, we are unit holders in the Global Opportunities Fund.
Yeah. Now the Australian Opportunities Fund has delivered 22.6% per year since inception, beating its benchmark by 16 percentage points per year. So that's an impressive track record. And we really wanted to dig into how Andrew sees the world, how they pick stocks, and probably most importantly, where they're seeing opportunity today. Because as we get into with Andrew, the beneath the benchmark, like beneath the small cap index, there's a heap of movement, a heap of change going on. And yeah, I guess it's an opportunity for people who are trying to play the small cap game.
So Afeer publish a free monthly newsletter covering their view on the Australian and global markets and the companies that they're buying and selling. So if you want to get an understanding of how they think about markets, what they're interested in before even investing in any of the funds. It's a great opportunity. We'll put a link in the show notes for you to sign up and you can find out more.
So before we get into it, we want to say a massive thank you to Ophir for sponsoring this episode and helping us keep all of our content free here at Equity Mates. With that said, let's get to our conversation with Andrew Mitchell.
Well, Andrew, welcome to Equity Mates.
Thanks for having me, Bross.
So Australia's small ordinaries index rose roughly 10% in FY26. Yeah. Why is it that you say that number told investors almost nothing?
I think it's Sir Arthur Conan Doyle. He had this phrase that sometimes it's like looking out at the ocean, it looks really calm, but underneath there's monsters, sharks, crocodiles everywhere. That's kind of what happened in small caps in 26. For us as a long-only industrial sort of really focused fund, you had materials go up 50%. So these are the resource companies going crazy. And then on the other side, you had these software, SaaS, perceived that will be the carnage of AI effectively. They were hit for six. And so there was a lot happening there. To give you 10%,
which is an average for an average year.
Average year, like, no, there was a lot
happening under that calm surface.
Fair.
How unusual is that? Is that just the story of the market every year or was FY26 particularly volatile and dispersionary?
Particularly volatile dispersion.
I'll bring that into the
vocabulary. On record, if you look at the best performing sector, as we said, as I just said before, materials like resources versus the worst performing, which is comm services. Now that's sort of got realestate.com and Seek and these sort of companies in there and consumer discretionary. They were off 20%. That in the history of the ASX is the greatest dispersion between.
Wow.
Yeah. the history of the ASX or the history of one of
the index.
The history that I've gone back and looked at, that is the greatest dispersion that we've seen between the best performing sectors and the worst performing sectors. So yeah, it is unusual. Now you're always getting regime changes and there will always be the best performing and the worst performing sectors.
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Chapters
8 chapters
1
Why does the small‑cap index appear calm while underlying volatility is high?
0:00–4:59
2
What did the August reporting season reveal about Australian earnings outlook?
4:59–10:20
3
How are AI spending and data‑centre CapEx reshaping small‑cap opportunities?
10:20–15:52
4
Why is Southern Cross Electrical positioned to benefit from Australia’s data‑centre boom?
15:52–19:52
5
Why is reporting‑season volatility becoming harder to navigate for investors?
19:52–25:11
6
What is Ophir’s bottom‑up small‑cap stock‑picking process?
25:11–30:38
7
Why does Ophir avoid commodity‑driven sectors in its portfolio?
30:38–35:29
8
What makes Codan a high‑conviction pick in the small‑cap fund?
35:29–41:34
Speakers
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