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Here’s what you need to know today

• The Australian Labor Party’s victory party has been short-lived. The reality of governing has sobered everyone up. Two front-bench ministers from the previous Parliament, Attorney-General Mark Dreyfus and Industry Minister Ed Husic, have been demoted as Labor’s factions jockey for positions. (AFR)
  
  

• It’s not just the Labor Party. The Coalition’s leadership contest continues with the moderate Sussan Ley and more conservative Angus Taylor emerging as the two most-likely candidates. Northern Territory Senator Jacinta Nampijinpa Price has defected from the National Party to join the Liberals and run as Angus Taylor’s deputy. (SMH)
  
  

• That’s not all the party in-fighting. The Green’s leader Adam Bandt conceded defeat for his Melbourne seat opening up the party to its own leadership contest. (The Guardian)
  
  

• Speaking of elections, the first round of voting in the Papal conclave did not produce a new Pope. The 133 cardinals let black smoke emerge from the chimney of the Sistine Chapel, a signal that the first round of voting did not produce a winner. (Al Jazeera)
  
  

• The US Federal Reserve decided to leave interest rates on hold. It faces a tough balancing act managing its dual-mandate of keeping inflation low (which would see it raise rates as tariffs raise prices) and maintaining full employment (which would see it cut rates as the economy starts to slow). So the Fed decided to take the wait-and-see approach. (CNBC)
  
  

• Tensions between India and Pakistan continue rising, as Pakistan reported it shot down 12 Indian drones over its territory. Earlier Indian missile strikes on Pakistan killed 31 civilians, according to Pakistani officials. Pakistan’s Prime Minister Shehbaz Sharif vowed to avenge the killings but has not taken any action at the time of writing. (AFR)
  
  

• Trump is reportedly about to announce his first bilateral trade deal as part of his 90-day pause on his Liberation Day tariffs. Trump teased a trade deal on social media without specifying which country, although multiple White House sources have confirmed it will be Britain. (Al Jazeera)
  
  

• Meanwhile Ford announced a $2,000 price increase to many of its Mexican-made models sold in the US, acknowledging that it is feeling the tariff pressures. (CNN)
  
  

• Earnings season continues in the US. Disney was the standout with all sectors of the business reporting growth and the stock jumping 10%. The film Moana 2 was a particular highlight, bringing in more than $1 billion at the box office and already clocking 139 million streaming hours on Disney+. The company also announced its seventh theme park, this one in the United Arab Emirates. (Quartz)
  
  

• Australian Treasury forecasts project Australia’s government debt will reach $1 trillion as soon as September this year. Ratings agency S&P Global warned right before the election that spending commitments from each party threatened Australia’s AAA credit rating. (AFR)
  
  

• Woodside Energy investors continue to push the Australian oil and gas giant on climate concerns. Led by big Superannuation funds and influential investor proxy groups, almost 20% of shareholders voted against re-electing the sustainability committee chair, while 15% voted against the company’s remuneration report. Neither of those votes were enough to change the outcome. (AFR)

What the…?

Utah has become the first US state to ban fluoride in drinking water. Since as early as the 1940’s, many parts of the world have been adding fluoride to drinking water to improve dental health.

However, US Health Secretary Robert F. Kennedy Jr. has called fluoride an “industrial waste” and led the charge to remove fluoride from drinking water. President of the American Dental Association Brett Kessler called Utah’s decision a “significant mistake” based on “distorted pseudo-science”. (The Guardian)

Investing is a lifelong journey

Here’s what you can learn today.

Small caps: Picking stocks v Active managers v ETFs

This is an excerpt from our conversation with Andrew Page on Equity Mates Investing unpacking Andrew’s two investing loves: small caps and Bitcoin (Apple | Spotify | YouTube)

How should everyday retail investors think about getting access and investing in the small cap space? Is it the index fund approach, picking the best small cap managers, or picking stocks yourself?

I'm a big fan of passive investing. The reality is, and again, no one likes to say this, but investing is really hard and it's a lot of work. And even when you get it right and you're okay at it, it's very stressful.

So there is a lot to be said about trying, instead of trying to find the needle in the haystack, as Jack Bogle said, is to buy the haystack itself.

But I think that only really holds true when you're talking about very broad based, high level indices. Once you start doing the thematic indices, once you start doing the more narrowly defined indices, it gets a little bit harder because there's a huge amount of subjectivity in that.

So what do they mean by small caps? Well, if we look at the Russell 2000 index, it's just basically there's a liquidity threshold in there and a market cap threshold. And when you look at the ASX small cap space, what is it, two thirds or something? Mining explorers. But within that, you've got industrial companies, you've got retailers, you've got technology companies. I mean, they’re chalk and cheese. The only thing that they share in common is a market cap and liquidity threshold.

So when you buy a small cap index on the ASX, you are getting a load of garbage because a lot of criticisms that people have about small caps actually aren't that unfair. There's a lot of crap, if I can use the word, that's in there, always going to forever going to companies, we're on the cusp of this next big thing and we will just do one more capital to raise and we're going to do it, I promise. And it's not because evil, it's just because business is very, very hard.

As a general rule, I don't think you will do better than you would with just a broad base S&P ASX 200 sort of fund because of all of that. So if you are going to go into small caps, you'll do yourself a huge favour by being a little bit more selective and a little bit more proactive. There's a spectrum there. You might just say, I'm just going to find the best stock I'm going to invest in, or I'm just going to try and find 50 that are okay and invest in that. Or I'm just going to cut out the materials and mining explorers companies or the early stage biotech companies and you might just sort of say, listen, I like small caps, but I'm just going to go for companies that have a real business that have positive cash flows. And if you're talking about that kind of stuff, I've got a lot more sympathy for the basket approach.

But just the way that these sectors are defined and the way that these passive ETFs are constructed within that space, it just means that you are lumped with a lot of garbage at the same time.

Prefer to watch this interview? All Equity Mates episodes are released in full on YouTube. Watch our interview with Andrew:

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