9 ASX stock ideas for the next phase of the market – where precision will rule

Please note, this interview was recorded Wednesday, 19 November 2025

After a difficult stretch for small and mid-caps (SMIDs), investors could be forgiven for questioning whether that particular part of the equity market still deserves its long-held reputation as the sweet spot of the market. 

But for David Lloyd from Ausbil Investment Management, the attraction has never really faded. Dynamism is built into this universe. New winners graduate into the index, fallen leaders return with refreshed strategies, and specialist operators often deliver sharper earnings leverage than the broad and slow-moving portfolio exposures of the large-cap names. 

Most importantly, the SMID universe gives investors the ability to take highly targeted positions.

This targeting becomes powerful when the cycle shifts. Rather than owning a diversified miner with multiple commodities moving in different directions, small and mid-cap names can offer the exact thematic investors want to back. As Lloyd explains; 

“Pure play names can rerate a lot faster and they get more earnings zing as things turn because they are not weighed down by maybe a commodity or two that is not doing so well in a diversified house.”

That precision is central to Ausbil’s style-agnostic approach. Lloyd sees compelling opportunities across US housing, domestic financial platforms and selected technology enablers as the next phase of market dispersion unfolds, reminding investors why emerging leaders remain such fertile ground.

INTERVIEW SUMMARY

The structural appeal of SMIDs

Lloyd begins by restating why small and mid-caps remain compelling despite a choppy period. This is an index that constantly refreshes itself. New businesses graduate from small-cap status, bringing proven products, stronger balance sheets and better-regarded management teams. At the same time, fallen angels re-enter the index after periods of underperformance, often with renewed strategies and refreshed leadership. Lloyd argues that these two forces combine to create an ecosystem rich in growth, renewal and corporate change.

He notes that this dynamism allows investors to find companies at key inflection points. Some names are beginning their journey toward scale, while others are turning themselves around after pressure from shareholders and boards. That mix of early-stage growth and strategic resets creates persistent opportunity for active managers.

Why SMIDs can continue to outperform

Lloyd is clear on the team’s long-term view. He and Ausbil remain constructive on global growth, and SMIDs offer exposure to those themes in ways that large caps often cannot. He argues that one of the clearest advantages lies in resources. Rather than owning broad, diversified miners, SMID investors can buy pure play operators that respond more directly to the underlying commodity cycle.

He highlights Sandfire (ASX: SFR) as an example in copper and contrasts its performance with BHP and Rio. The comparison illustrates his point that specialist producers can capture earnings changes more quickly. He also points to rare earths exposure through Lynas (ASX: LYC) and Iluka (ASX: ILU), and lithium exposure through Pilbara (ASX: PLS).

For Lloyd, that specificity is what gives SMIDs their edge and supports the historical pattern of outperformance.

The advantage of a style-agnostic approach

One of Ausbil’s defining features is its flexibility. Lloyd explains that the Ausbil Australian Emerging Leaders fund is deliberately style-agnostic, giving the portfolio room to respond to structural and macro changes. He reflects on the past five years as an example of how quickly the backdrop can shift. Markets moved from record low rates to a rapid tightening cycle, while geopolitical and trade dynamics also evolved. That environment rewarded managers who could pivot.

Lloyd explains that when rates fall or remain low, the fund can lean into growth names. When rates rise, it can tilt toward value or interest rate beneficiaries. He says the ability to play across the full SMID universe, including resources, has helped the strategy navigate recent volatility. While the fund did not escape the sell-off in tech names, its overweight to resources provided a natural buffer.

He emphasises that turnover is kept measured, with typically three to five new names entering or exiting each year. The main adjustments come through scaling sector tilts up or down as conditions evolve, rather than dramatic reshaping of themes.

Finding precise exposure across themes

Lloyd expands on targeted exposure, explaining that SMIDs allow investors to isolate themes that are harder to access through large caps. US housing is a prime example. He notes that names like Reliance Worldwide (ASX: RWC) and Reece (ASX: REH) provide direct links to US housing activity, and both have been under pressure due to the softer cycle. He argues that the cycle is likely near bottom. Interest rates have stabilised, mortgage rates may ease, and the US administration has signalled a desire to stimulate housing demand. He references ideas that have been floated, such as 50-year mortgages and the portability of mortgage contracts.

“We think housing activity in the US has the potential to pick up next year, and we are at a bit of a cyclical bottom.” 

He believes the setup mirrors the position resources stocks were in nine to twelve months ago.

Beyond housing, he points to domestic financial platforms such as Hub24 (ASX: HUB) and Netwealth (ASX: NWL), as well as selected consumer and technology names that give direct exposure to specific trends without the unwanted exposures baked into larger conglomerates.

Identifying tomorrow’s emerging leaders

Lloyd concludes with insight into how Ausbil identifies names that may graduate into mid-cap status. The key attribute is consistent compounding over a three to five-year period. He notes that overly cyclical businesses struggle to make the transition, but structural growers can.

He points to Zip (ASX:ZIP) as an example. He explains that the US buy now pay later market is still in early stages, has continued to grow, and that Zip has removed loss-making regions that previously weighed on the narrative. He believes the company has the potential for significant earnings growth and may enter the ASX 200 at the December rebalance.

Another candidate is TPG Telecom’s Singapore business, Tuas (ASX: TUA). He argues that the company has a long runway and is executing well under David Teo. Regulatory uncertainty has created a pullback, which allowed it to enter the mid-cap fund. Ausbil expects meaningful earnings accretion from the most recent acquisition.

Lloyd’s process benefits from Ausbil’s deep research team and significant overlap with its small and micro-cap fund. Roughly one-third of his portfolio is shared with that team, giving him visibility on future mid-cap candidates early in their lifecycle.