2 high conviction mid caps (and one small cap on the rise)

It's probably no surprise to readers that large caps have outperformed their small and mid-cap counterparts over the past 12 months. 

This, of course, makes cents (literally). Around 33% of the S&P/ASX 50's giants are financials, while 26% are resources companies - both of which have been surprisingly resilient in the face of levels of inflation and interest rates that we haven't seen in more than a decade. 

In comparison, the mid-cap index, the S&P/ASX Mid Cap 50 (which tracks the companies outside of the top 50 but within the top 100) has far more industrials, consumer discretionary, real estate, energy, communication services, tech companies and utilities names than its large-cap counterpart (see below) - many sectors which have been battered over the past 12 months. 

That said, when you take a longer-term view, ASX-listed mid-caps have been the best-performing segment of the market over both a three and five-year period (see chart below). 

According to Eley Griffiths Group's David Allingham, this outperformance comes down to the quality of the companies within the mid-cap index, as well as the liquidity they enjoy.  

"These are more established businesses. They've often got high barriers to entry and are profitable. Those kinds of dynamics are very favourable," he says.  

"You've also got the dynamics of the best small-cap companies as they graduate. They're often on a momentum or profit growth story that gives that real turbocharge as they enter the mid-cap part of the market."

With this in mind, Eley Griffiths is making a foray into the mid-cap market, launching a fund that would blend 30% of its high-conviction ideas in small-caps with 70% of the best mid-caps the market has on offer. 

In this Views from the Top interview, Allingham shares why the firm is launching this fund now, his outlook on corporate earnings, as well as some of the team's highest conviction small and mid-cap stock picks right now. 

FIND OUT MORE ABOUT THE ELEY GRIFFITHS GROUP MID-CAP FUND HERE

Note: This interview was filmed on 31 October 2023. 

Timecodes

• 0:00 - Intro 
• 0:23 - Why move into mid-caps now? 
• 0:53 - What makes the Fund different to its peers? 
• 1:39 - Why mid-caps outperform over the long term 
• 3:32 - How Eley plans on outperforming the benchmark
• 4:25 - Small caps could be in for a period of recovery 
• 4:47 - Corporate earnings outlook 
• 5:29 - Two high conviction mid-caps: Carsales (ASX: CAR) and Boral (ASX: BLD)
• 6:35 - The sector set to struggle from here: Lithium names 
• 7:16 - The commodity the team prefers instead: Uranium 
• 7:46 - Small caps headed for mid-cap status: Genesis Minerals (ASX: GMD)