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James Abela, Fidelity 

Over the last 10 years in Australia, we’ve witnessed some amazing small- and mid-cap businesses evolve from an idea to established international businesses with a market capitalisation of US$10 billion or more. 

A small sample of these high-quality compounders includes Domino’s Pizza Enterprises (ASX: DMP). REA Group (ASX: REA), Resmed (ASX: RMD), CSL (ASX: CSL), and James Hardie Industries (ASX: JHX). 

If our experience in the Australian small- and mid-cap universe is any indication of the potential for long-term value creation, we can expect the global investment universe to deliver strong gains.

The global small- and mid-cap universe is dynamic and diverse. It includes around 4,000 companies ranging from US$1-$40 billion in market capitalisation. 

With a strong investment discipline and consistent approach, we believe the global stage offers many opportunities to invest in tomorrow’s future leaders. Some examples of top performers are included in the table below:

Company Region Product/ Service 10-year total returns (%) Market cap (US$ billion)
Techtronic Industries Hong Kong Household durables 1860% 32.8
ICON Ireland Clinical research outsourcing 989% 19.4
Cheniere Energy US Liquid natural gas 725% 21.5
NICE Israel Cloud computing 674% 17.4
Arthur J Gallagher US Insurance broker 557% 28.8

Source: Refinitiv DataStream, 31 July 2021. Reference to specific securities is for illustration only and should not be construed as a recommendation to buy or sell these securities. Please remember past performance is not a reliable indicator of future performance. 


The mid-cap universe is home to many potential “multi-baggers” [stocks that increase many times from their initial offer price]. The segment is under-researched compared to its large-cap counterpart. Fewer investors researching these names increases the likelihood of high-quality businesses flying under the radar, allowing for mispriced opportunities. 

Investors also tend to miss the forest for the trees, not realising there are well-established businesses with strong records alongside the more obvious listings of newer companies and business models.

Many of these businesses are also founder-led. This increases the likelihood that management teams are innovative, agile and that their interests are strongly aligned with outside shareholders. 

Finding opportunity

In our experience, the best ideas or “future leaders” in the global small- and mid-cap universe are typically business models that are either structural winners, technology disruptors, innovators, category killers, and/or brand leaders. 

Sometimes these businesses are unique niche operators or specialists that dominate their field. At other times they are part of a large global theme. Sectors such as technology, healthcare, globally focused consumer, and industrials have more recently been home to such business models. 

Sector Themes
  • Software as a service
  • Data centres and Cloud
  • Subscription-led content models
  • Connectivity enablers and 5GArtificial Intelligence
Energy, Resources and Utilities
  • Solar
  • Wind & Hydro
  • Other Renewables
  • Electric vehicles
  • Green steel
  • Online retailers
  • Environmentally Conscious
  • Plant-based foods
  • Social gaming
  • Mass-market luxury
  • Fintech services
  • Virtual banking
  • Global exchanges
  • Trust and advisory
  • Customised insurance

Source: Fidelity

Risk-Return analysis highlights solid outcomes 

So, why should investors think about an explicit allocation to global small- and mid-cap equities within their portfolio?

Mid-caps in particular sit at what you might call the “sweet spot”. They’re likely to offer more growth than large-caps and carry less risk and volatility than small- and micro-caps. Indeed, if we look back over the past quarter of a century or so, global mid-caps have generated higher returns than large- caps.

Maroun Younes, Fidelity

Large-cap names such as Amazon, Facebook and Tesla, which have dominated recent headlines, provide a great example of the growth potential available in the mid-cap universe. 

Facebook, for instance, was a mid-cap segment opportunity when it listed in May 2012 with a market value of US$ 24 billion, and stayed in the sub-US$ 40 billion range for the next nine months.

For a broader assessment, we’ve looked at the rolling 10-year view of average annual returns of the international small-cap universe versus its large-cap counterpart. As the graph below demonstrates, mid-caps have outperformed large-caps 90% of this time. Over a shorter 5-year timeframe, mid-caps have outperformed 73% of the time.

Source: FactSet, MSCI, August 2021. Please remember past performance is not a reliable indicator of future performance.

Balancing risk and return

Mid- to small-caps tend to be riskier investments than large-cap companies. They have greater growth potential and tend to offer better returns over the long term but without the resources of larger companies, which makes them more vulnerable to sentiment and negative events, such as the pandemic.

This increased volatility is offset by higher growth potential, as demonstrated by the below chart that shows mid-caps performing strongly on a risk-adjusted return basis against their larger peers. 

Risk-adjusted returns - International mid-caps vs international large-caps

Source: Refinitiv DataStream, August 2021. Please remember past performance is not a reliable indicator of future performance. 


The Covid crisis has highlighted the importance of investing in high-quality names, characterised by sound balance-sheet structures that enable companies to weather more challenging environments. 

An active investment approach offers crucial advantages for investors as it allows investment teams to select opportunities from a much broader universe than those available in the index. The advantage to investors is twofold: greater diversification across countries, sectors, and companies, and managers enabled to focus on research and choose investments selectively.

With around 1000 companies in the MSCI World Mid Cap index and almost 4000 companies in the investible universe, the opportunities are vast. This can be daunting for investors, but it’s the size and diversity that make mid- to small-cap equity investing at the global level so attractive. 

Of course, research plays a vital role in finding companies in their earlier stages of growth, which is why it’s important to choose a fund manager, like Fidelity, with the global reach to help inform investment decisions.

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The views, opinions or recommendations of the author in this article are solely those of the author and do not in any way reflect the views, opinions, recommendations, of ASX Limited ABN 98 008 624 691 and its related bodies corporate (“ASX”). ASX makes no representation or warranty with respect to the accuracy, completeness or currency of the content. The content is for educational purposes only and does not constitute financial advice.  Independent advice should be obtained from an Australian financial services licensee before making investment decisions. To the extent permitted by law, ASX excludes all liability for any loss or damage arising in any way including by way of negligence.