What have the small cap team been buying?

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Volatility can be an active manager’s friend – if you’re prepared of course. In this podcast IML’s small-mid cap portfolio managers, Marc Whittaker and Lucas Goode, talk to Carl McMinn about how things went in the first quarter of 2026 and the quality companies they’ve been able to pick up at cheaper prices.

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Lightly edited transcript – Recorded on 9 April 2026

Carl: Hello and welcome to Navigating the Noise, a podcast by Natixis Investment Managers, where we bring you insights from our global collective of experts to help you make better investment decisions.

I’m Carl McMinn, and today I’m joined by Marc Whittaker and Lucas Goode, portfolio managers on IML’s small and mid-cap funds, to discuss the first quarter of 2026. Welcome back, gentlemen. Great to have you here.

Marc: Thank you, Carl. Good to be back.

Carl: Great to have you back. For those regular listeners, you’ll recall we spoke in January and at the time, small cap stocks had a cracking finish to 2025. January was much the same. It felt like everything was looking roses, and then bang. AI disruption, war on Iran, inflation, RBA hikes, everything’s feeling a lot less certain. Can you take us through a summary of how markets have reacted over the last quarter?

Marc: Look, it feels like a very different world to where we were back in January. Obviously, as you mentioned, there’s been a whole heap of, or a confluence of different events. Whether it’s interest rate hikes here, which are never great for small cap industrials, whether it’s the war in Iran, AI disruption and you throw reporting season into that mix as well, and it’s been a very heavy news-flow quarter. And in the face of that, markets have obviously pulled back a reasonable amount – small caps and mid caps are down about 11 to 12%.

Our performance has been roughly in line with that. I mean, the big thing to take is that the volatility, we’re gonna use that word, it’s pretty much been unprecedented, right? So what we’re seeing in markets is just, we haven’t seen anything like this for a long period of time. And I think in light of that, the portfolio’s actually held up okay. We’re in line with the market, so that’s not great. We’re not going to put a hand up and say that’s a great performance. But I think the stocks we own, the performances we saw out of reporting season, the resilience of a lot of the long-term holdings we’ve had in the portfolio, like Aurizon, Ampol, and those sorts of names have actually held up pretty well. But it’s certainly been a volatile period, no doubt about that.

Lucas: Just to throw some more numbers at you, Carl. The small industrials were down 16% for the calendar year until the relief rally yesterday. And it’s actually quite an outlier relative to (other markets) the ASX 100 is essentially flat for the quarter. The Russell 2000, which is the US small cap index, is actually up marginally for the year. So, Aussie smalls really stand out as having been disproportionately belted, which, as Marc touched on, I think for us, it’s painful, but also that’s the opportunity moving forward.

Marc: And the disconnect between resources and industrials too looks quite pronounced.

Lucas: Well, yeah, resources ran really hard in the back end of 2025, and that relative performance has really gotten out of whack.

Marc: And gold’s quite funny, isn’t it? Gold’s up on a peace deal and it’s down on a prolonged war basis, which seems a little bit counterintuitive.

Lucas: Yeah, I mean, if gold’s now a risk-on asset, then it’s hard to see what the case is for owning it if it’s not a hedge anymore.

Marc: That’s right. It’s sort of become more of a risk play asset, hasn’t it? As opposed to a safety.

Lucas: Maybe Bitcoin’s not the new gold, gold’s the new Bitcoin?

Marc: that’s right.

Carl: All right. Well, moving more towards individual stocks, over the quarter, both positive and negative, larger moves than normal. How’s that impacted some of the individual positions in the portfolio?

Lucas: I’ll flag a couple of positive performers. We have ClearView, which is a long-term holder, a life insurer. They got a takeover bid from Zurich. We’re a bit disappointed about the size of the premium; it was actually a discount to the embedded value of ClearView’s books, but it is a liquidity event in a long-term holding that’s not very liquid, so that was positive.

New Hope’s been a massive outperformer because of the rally in thermal coal as part of the energy complex. That’s one where we’ve been quite bullish on long-term. We think consensus pricing for thermal coal is wrong, and coal demand is more resilient. Whitehaven also benefited from that in the mids. We did take the opportunity to trim a bit of that when it ran hard, but we still like the outlook for coal longer term.

The results I actually wanted to flag as some that we think fit into the AI winners bucket. So three of the strongest results we thought in reporting season were Praemium, Hansen, and News Corp. These are all winners from AI, and they’re delivering real cost outs and real revenue benefits from AI, but the share prices haven’t necessarily reflected that. Praemium and Hansen, for example, got caught up in the overall small cap tech sell-off despite the fact that they both reported operating expenses down and revenue up as a result of AI. So those are positions that we’ve added to and feel really strongly about moving forward.

And these are the kind of opportunities that Marc was talking about that this volatility throws up.

We did have some less positive results out of ReadyTech, which had an earnings downgrade, and Amplitude Energy as well, which unfortunately had a couple of unsuccessful wells that they drilled, which is really a shame given the outlook for domestic gas remains really strong.

So, mixed performance from the portfolio, but we really retain a lot of conviction around some of those longer-term holdings.

Carl: Great. You touched on it then. Volatility normally creates a bit of opportunity for guys like yourselves in the active manager world. So let’s talk about what you’ve been trading over the quarter. Any new positions?

Lucas: Marc’s going to run through some of the positions, but I just wanted to highlight as well, Carl, that we saw a pretty similar sell-off to this about a year ago, which also was instigated by Donald Trump with the Liberation Day tariffs. Different scenario, but similar in terms of the sell-off we saw in small industrials. Small industrials were absolutely belted in March and early April last year. And the rally we saw yesterday in response to the ceasefire is actually pretty similar to the rally we saw when he backed off some of those tariffs. And of course, as you touched on in your intro, small caps had a really good rest of 2025. So hopefully the stage is set for something similar. But I’ll just throw over to Marc on some of the moves we’ve done in our portfolio.

Marc: We’ve certainly been active in this period, Carl. I think, as you say, volatility throws up opportunity, right? So we’re not here sitting on our hands going, “Woe is me.” I think there’s really been an opportunity. The phrase I’m using at the moment is “high grading the portfolio.”

So where we’ve seen quality stocks in the past that we’d like to have owned, but we haven’t really been able to justify on valuation grounds, we’ve seen a fair bit of that higher-quality type stock pull back to what we think are more reasonable levels. And so that’s given us an opportunity to really look at and add new positions to the portfolio. So the likes of REA, SGH, the old Seven Group Holdings, News Corp, which Lucas mentioned, ARB in that small cap consumer discretionary stock, yes, but exposed to four-wheel-drive accessories and so forth. We think that’s quite a good quality holding. The likes of AUB, the insurance broker. We own Steadfast in the mids, and we haven’t really had an exposure there in the small caps. All brokers have come back to more like an 11 times multiple.

Lucas: It’s a stock that’s typically traded at a premium to market, and it’s now trading at a big discount to a market that’s sold off. We think it’s clear mispricing.

Marc: Yeah. And if you’re concerned about inflation, and obviously the spectre of inflation is rearing its head again, the likes of insurance broking is typically an industry that does well in times of higher inflation.

So we’re really taking the opportunity to add what we think are some really high-quality names, but at really reasonable prices. In the past, we’ve looked at quality, higher quality, and thought, well, we can’t really justify that. But I think now, the likes of REA in the mids, as I say, the likes of SGH, News in the smalls, ARB in smalls and mids. I think these are really good names that we can add at what we think are very reasonable prices.

And I think it sets the portfolio up really well going forward. A lot of what we own, we haven’t really moved a lot because we still like what we own, and they’ve just got cheaper, unfortunately. But the likes of Amotiv, for example, that’s one trading at seven times PE and a dividend yield close to 6% to 7% fully franked.

So there are some really good industrials there trading really cheaply. We think if the market wants to rally, these names will certainly catch a bit at some point. But for now, the yields are attractive, the PEs are attractive, and the valuation metrics around the portfolio, we’re very comfortable with at the moment in terms of yield and PE and so forth.

Lucas: I think, just to pick REA as an example, Marc flagged there. This is a stock that we’ve admired for a long time, and I personally think REA is probably the best business on the ASX, but it traded at a very premium valuation as a result of that. It’s almost halved over the past year, and that’s been caught up in quite a few of those things.

It has sold off during the Iran conflict because it is a fairly high beta name, but it really got belted around with the AI disruption narrative, which has seen online classified stocks hit globally. But you look at REA’s business model; I think they’re going to be an AI winner. They’ll have first dibs on implementing those AI tools in their products, which has already got such a powerful flywheel and such strong network effects that we really think it’s a pretty bullet-proof business model and has been completely oversold on really vague concerns based on someone launches a new widget using Anthropic overseas. I mean, we just don’t see how that impacts REA, and we think that’ll be an AI winner. So we’re happy to buy that on a dip.

Marc: Yeah, it goes back to market position. We like companies with good market structures and industry positioning, and REA certainly falls into that category. Other names we’ve added to, Carl, Reliance Worldwide in that small cap space, back of the wall plumbing fixtures as a global franchise trading on, I think, 11 times as well, very cheap.

We’ve added to our Collins Foods. Nothing beats fried chicken in a time of consumer uncertainty. We think that’s quite a staple offering. We like that one. And the likes of oOh!Media (formerly Aussie outdoor), not entertainment, we’ve added to. They made an acquisition of QMS outdoor advertising. There was a capital raise there which we participated in. And we funded that with some of the names that have held up pretty well, the likes of Aurizon, Imdex, Ampol, which has been a beneficiary in this current volatility. We think that looks fair-ish now given the run it’s had. So we’ve been using those sorts of names to sort of trim there and top up other names that we like or take those new positions.

Carl: Great. Plenty of activity. Love to hear it. Always nice to see you’re active in the market and taking advantage of those opportunities. Speaking about that landscape for small caps, what will you guys be paying close attention to over the next cycle, say, next three to six months? What’s important, do you think?

Lucas: Well, hopefully things settle down a bit in the Middle East. The focus is going to return to the Australian economy, and clearly there are challenges. Inflation’s really sticky. This war clearly hasn’t helped. The RBA has switched from a dovish to hawkish policy to try and get inflation under control.

There are high hopes ahead of Chalmers’ May budget around tax reform. I mean, we probably live in hope rather than expectation on meaningful reform coming out of this government. So there are some concerns, particularly around the consumer with the domestic economy. But it’s not all doom and gloom. Business credit growth is really strong. Part of the reason why inflation’s so sticky is because the private sector has actually picked up in terms of its spending.

So we keep a watching brief on that. We’ll keep a close eye on the data. Our base case at the moment is that Australia could slip back into a per capita recession, but once you add immigration to the mix, I don’t think we’re actually going to have negative GDP growth.

But probably a pretty tepid growth environment, but one that we think really lends itself to stock picking. And again, look at the small industrials now, it’s on 14 times earnings; it was 18 times towards the back end of last year. The growth outlook, we don’t think has changed that much. It’s just thrown up a lot of opportunities.

Marc: And income too, don’t forget the income side of things, there’s a lot of high yielding stocks.

Lucas: Yeah, I guess as PEs come down, the yield of the index goes up. And our portfolios are yielding quite a bit more than the benchmark as well. So there’s a lot of these stocks you’re getting paid to own them at cheap valuations.

Carl: Perfect combo. Well, thank you, Marc and Lucas. I think we’ll leave it there. And of course, thank you to all our listeners for joining us. If you’ve enjoyed the episode, please click follow on your favourite podcast platform and tune in again to hear more from our global collective of experts.

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