Why investors should be targeting ASX mid-caps and ASX small-caps after earnings season: Expert

It is well documented that Australia’s largest blue-chip companies dominate portfolios. However, a new VanEck report suggests stronger ASX mid-caps and ASX small-caps could deliver stronger growth post-earnings season.

According to Arian Neiron, CEO & Managing Director of Asia Pacific, VanEck, the ASX 200 is seen by investors as the home of Australian equities, by super funds as a source of liquidity, and by regulators as a familiar benchmark. 

All these perspectives create the illusion that the largest companies receive the largest allocations with conviction. But this is not the case.

Australia’s largest companies have not become safer because everyone owns them. They have simply become harder not to own. Reporting season is now exposing the potential opportunity cost of this investing reality, with the strongest expected earnings growth emerging among small and mid-sized companies.

Changing conditions 

According to the report, for the first seven months of 2026, a bias towards large companies appeared to be a viable strategy.

Through late July, the S&P/ASX Small Ordinaries Index had fallen approximately 13%, while the S&P/ASX 100 had gained almost 5%. 

Smaller companies faced legitimate headwinds from rising interest rates, soaring energy prices and lacklustre consumer and business confidence.

But as the environment has changed, that conclusion has become harder to defend.

Consensus estimates suggest Australian small companies could deliver earnings per share growth of approximately 28% over the next year and 25% the year after. 

Mid-sized companies are expected to produce growth of around 13% and 8%, respectively. By contrast, the largest companies have earnings growth estimates of closer to 4% and 2%, respectively.

Opportunity not evenly spread

August offered the first evidence that ASX large-caps may already be lagging. 

Recently, higher rates have exposed the difference between growth funded by a business and growth funded by its shareholders. 

Markets now expect less additional RBA tightening than they did a few months ago. Since small companies have historically been sensitive to changing rate expectations, that repricing can ease some pressure on valuations.

However, the opportunity is not evenly spread. 

August reporting season showed why selectivity matters. Macmahon Holdings Ltd (ASX: MAH) increased earnings per share by 25%, generated more free cash flow and reduced net debt. Superloop Ltd (ASX: SLC) completed its first profitable financial year and increased free cash flow by 50%.

Both companies were rewarded after reporting. Neither was rewarded simply because it was small. What mattered was the improving financial evidence.

How to gain exposure to ASX mid-caps and ASX small-caps?

While recent economic conditions don’t guarantee sector-wide wins, investors can gain exposure to ASX small-caps and ASX mid-caps through ASX exchange-traded funds (ETFs).

One option for ASX mid-cap exposure is the VanEck S&P/ASX Mid- Cap ETF (ASX: MVE). 

It tracks 50 mid-sized companies listed on the Australian Securities Exchange.

For ASX small-caps, VanEck Small Companies Masters ETF (ASX: MVS) tracks a diversified portfolio of small-cap Australian companies listed on the ASX. 

The post Why investors should be targeting ASX mid-caps and ASX small-caps after earnings season: Expert appeared first on The Motley Fool Australia.

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Motley Fool contributor Aaron Bell has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.