Australian confessions season shines a spotlight on small caps after its strong outperformance of the S&P/ASX 200 in August, says VanEck

“It was another volatile reporting season and the defining theme was guidance sensitivity. Results largely met expectations but any softness in the forward EPS outlook was punished by the market with share price movements of more than 10 per cent post results. Stocks such as JB Hi-Fi, SEEK, and CBA were all sold off on cautious commentary despite near-inline prints,” said Neiron.

“However, small caps were able to demonstrate resilience despite a macroeconomic backdrop of subdued growth and elevated inflation. This includes small caps miners and industrial companies.

“SRG Global increased its revenue 27 per cent year-on-year and provided an improved outlook to the market. Similarly, Bravura Solutions’ net profit increased by 39 per cent year-on-year as contract renewals were secured and administration costs were cut by 10 per cent,” he said.

Record gold and copper prices have driven the resources sector's strongest beats of this season with underlying profits up 30 per cent year-on-year. The sector was also the second-best performer month to date added Neiron.

“The materials sector is entering FY2027 with the most compelling earnings growth runway of any sector on the ASX. Gold is overtaking coal as Australia's second-largest export. Genesis Minerals, for example, jumped over 40 per cent this month, reporting an 89 per cent year-on-year increase in revenue.

“Demand for the yellow metal is being driven by continued global uncertainty, given sticky inflation in developed markets, and a weakening US dollar further fuelled by the US Treasury’s announcement to buy back bonds last week,” said Neiron.

Costs have also been outpacing revenue growth across corporate Australia, another strong theme coming out of reporting season, and those demonstrating cost discipline fared better according to Neiron.

“56 per cent of ASX 200 companies reported higher operating expenses than top-line gains in FY2025. This is squeezing EBITDA margins and setting up a challenging FY2027 outlook as the RBA holds rates at 4.35 per cent and wage inflation remains sticky.

“Retail company JB Hi-Fi reported FY2026 results with revenue and earnings broadly in line but slightly below consensus, triggering a 13 per cent share price fall on the day.

“Cost of living pressures persist. This is being driven by the Middle East conflict's impact on oil prices, the end of the fuel excise relief, and food inflation, while labour and energy costs remain structural headwinds for retailers as we head further into 2026,” he said.

Australian equity portfolios remain heavily concentrated in large-cap companies, with the majority of capital allocated to the S&P/ASX 200.

“Investors need to be hyper-selective on which benchmarks to follow given this high concentration and consider other equal-weighted strategies to gain exposure to the small and mid-cap end of the market. These companies typically offer higher forward earnings growth at more reasonable valuations.

“The Australian economy is in a slowdown. We are in a cycle of cost control regimes and stagflation, where banking valuations remain high and the housing sector is coming off. Investors need to rethink their strategy and ask themselves how they want to position themselves in this macroeconomic cycle and where can they can achieve the most upside in the Australian equity market,” said Neiron.

August Performance

Source: Bloomberg. Data 1 to 25 August 2026. Small Cap GARP is MarketGrader Australia Small Cap 60 Total Return AUD Index. Past performance is not indicative of future performance. You cannot invest in an index.