Over the long term, I believe it's a good idea to focus on growing ASX shares with rising earnings and growth plans for further expansion.
I like investments that don't get as much investor attention because it means they're less likely to be overvalued.
I'm optimistic that the two ideas below could outperform the S&P/ASX 200 Index (ASX: XJO) in the next three years and deliver pleasing capital growth.
Image source: Getty Images
L1 Group Ltd (ASX: L1G)
L1 Group recently listed on the ASX after a merger with Platinum, and I'd say its growth outlook is very compelling. For starters, the company is targeting at least $30 million of cost synergies within 18 months.
Its investment funds have delivered impressive investment returns and this alone is a strong tailwind for funds under management (FUM) growth. But, it's also carrying out a capital raising of up to $330 million, which could do multiple things for the company.
It will fund a co-investment in L1 Capital's new global long short strategy, provide co-investment support for another strategy due to be launched in the near term, fund expansion in new investment strategies, including in affiliates and joint venture partners, and support potential acquisitions.
I expect the ASX share's FUM can rise significantly in the coming few years, making this an opportune time to consider a long-term investment in the ASX share.
VanEck MSCI International Small Cos Quality ETF (ASX: QSML)
This is an exchange-traded fund (ETF) focused on compelling, high-quality, smaller global companies.
There are exciting businesses beyond the ASX which aren't the biggest tech companies. Every large business was once a smaller one. The way this fund is set up means investors can gain exposure to some of the most exciting up-and-coming businesses from around the world.
ASX shares only account for around 2% of the global share market, so it's a good idea to look at other areas of the world.
The QSML ETF invests in 150 international developed market small-cap companies that rank well on three key characteristics. They should have a high return on equity (ROE), earnings stability, and low financial leverage.
When you put those three elements together, it means the companies are already very profitable for shareholders, the profit is usually growing, and they're achieving this with relatively little (or no) debt on the balance sheet.
Pleasingly, it also comes with significant diversification across countries and sectors. It has a portfolio weighting of at least 0.5% in the US, the UK, Japan, Sweden, Singapore, Switzerland, Thailand, France, Mexico, Bermuda, the Netherlands, Finland, and Denmark.
I believe smaller companies can outperform larger ones – we've seen strong performance by the QSML ETF in the last few years. In the three years to 30 September 2025, the ASX ETF delivered an average return per year of around 20%. That's an extremely pleasing level of wealth compounding, in my view.
