Hunting For 10-Baggers - James Abela | Fidelity

About this Video

• Video Title: Hunting For 10-Baggers - James Abela | Fidelity
• Channel: Equity Mates
• Speakers: Bryce, Ren, James Abela
• Duration: 00:34:22

Introduction

This Equity Mates podcast episode features James Abela, a Fidelity portfolio manager, discussing the current state of small-cap investing. The conversation centers on whether the predicted "year of the small cap" is playing out as expected, considering recent market shifts and macro uncertainty. Abela analyzes the global small and mid-cap landscape, highlighting opportunities and risks, and offers deep dives into two specific stocks: Moncler and Brown & Brown.

Key Takeaways

• Small-cap rotation hasn't fully materialized: Contrary to early 2025 predictions, a significant small-cap rotation hasn't occurred due to a shift in market risk tolerance. Defensive investments and low-beta stocks have outperformed.
• Global vs. Aussie small and mid-caps: The definition of small and mid-caps differs significantly between global and Australian markets, influencing investment strategies and valuations. Global mid-caps tend to be more mature and established.
• Macroeconomic uncertainty impacts small caps: Trade wars, inflation concerns, and general market fear have negatively affected small-cap performance, as investors favor larger, more stable companies.
• Valuation and duration are key: In the current climate, strong valuation discipline and shorter-term investment horizons are crucial. Uncertainty necessitates a focus on companies with visible, short-to-medium term, and predictable growth.
• Return on capital as a leading indicator: Analyzing return on invested capital (ROIC) and return on equity (ROE) provides valuable insights into a company's long-term prospects, even before earnings reports reflect changes. A "return fade" (decreasing ROIC/ROE) can signal future earnings issues.
• Stock Deep Dives: Moncler (luxury outerwear) and Brown & Brown (insurance brokerage) are presented as examples of companies demonstrating stability and growth potential in an uncertain market. Both exhibit high ROIC/ROE and sustainable competitive advantages.