The Small Cap index is lying to you with Andrew Mitchell

Andrew Mitchell (0:00)

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.

Bryce (0:20)

Yeah.

Andrew Mitchell (0:21)

That reversed. You lift your capex, your share price goes down. So there's a big question mark there.

Bryce (0:29)

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 is Bryce.

Wren (0:38)

And I'm Wren, and today we're 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.

Bryce (0:50)

Joining us in the studio today is Andrew Mitchell. Andrew is the founder and Senior Portfolio Manager at Ophir.

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.

Wren (1:06)

Yeah, now the Australian Opportunities Fund has delivered 22.5% or 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 in to 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, 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.

Bryce (1:43)

So Ophir published 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.

Wren (2:01)

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.

Bryce (2:14)

Well, Andrew, welcome to Equity Mates.

Andrew Mitchell (2:16)

Thanks for having me, Bryce.

Bryce (2:17)

So Australia's Small Ordinaries Index rose roughly 10% in FY26.

Wren (2:22)

Yeah.

Bryce (2:22)

Why is it that you say that number told investors almost nothing?

Andrew Mitchell (2:26)

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 percent. So these are the resource companies going crazy. Then on the other side, you had these software SaaS perceived that will be the carnage of AI, effectively, they were hit for six. So there was a lot happening to give you 10 percent, which is an average for an average year.

Now, there was a lot happening under that calm surface.

Wren (3:15)

Fair. How unusual is that? Is that just the story of the market every year or was FY26 particularly volatile and dispersionary?

Andrew Mitchell (3:23)

Particularly volatile, dispersionary. I'll bring that into the vocabulary. On record, if you look at the best performing sector, as I just said before, materials like resources versus the worst performing, which is comm services. Now that's got realestate.com and SEK and these companies in there, and consumer discretionary.

They were off 20 percent. That in the history of the ASX is the greatest dispersion between-

Wren (3:52)

Wow.

Andrew Mitchell (3:52)

Yeah. Is the history of the ASX or the history of one of the index?

Wren (3:57)

Yeah. Anyway, I won't get misquoted.

Andrew Mitchell (4:00)

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. People move out of some and into others. But to get that 70 percent, and they're not small sectors, like resources in smalls and mid-caps, it's like 30 percent of the index. Obviously, you've got BHP and REA at the top.