If we're going to invest in ASX shares to generate returns, then we may as well try to invest in the ones with the best outlook.
Smaller businesses normally have much better growth potential than larger ones because they are earlier in their growth journey.
It's much easier for a business to grow from $1 billion to $2 billion, than it is to go from $10 billion to $20 billion.
The two investments below are ones I think can scale significantly from where they are today, and I'd happily put $2,000 into them.
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Siteminder Ltd (ASX: SDR)
Siteminder is a leading ASX technology share that provides software to hotels for their operations and maximising revenue through hotel bookings.
The business has won subscribers from across the world, with a recent focus on larger hotels.
Impressively, the company has a goal of organic annual revenue growth of 30% in the medium-term. It's winning new subscribers and offering a number of modules that can help give hotels data to decide on room prices, or automate it for them.
Maximising revenue and room occupancy is a key factor for the success of a hotel, so Siteminder's service can be integral for the long-term.
As a software business, I'm expecting the company to deliver rising profit margins thanks to operating leverage and how costs may only grow at a relatively slow pace, enabling operating profit (EBITDA) and cash flow to soar in the coming years.
I think it's one of the most promising ASX share investments around.
VanEck MSCI International Small Cos Quality ETF (ASX: QSML)
This is an exchange-traded fund (ETF) that gives investors exposure to a global portfolio of some of the most promising small-cap shares.
It aims to own 150 of the world's highest-quality small companies, based on three key fundamentals.
First, a high return on equity (ROE). Second, earnings stability. Third, low financial leverage. Businesses that make high levels of profit, with earnings don't go backwards and that have low levels of debt are appealing investments.
Noting the great investment performance of small caps, VanEck, the provider of the ETF, says:
Investments focusing on quality small companies have delivered outperformance over the long term relative to other global small companies benchmarks and also relative to large- and mid-cap benchmarks.
Some of the businesses in this portfolio could become tomorrow's blue-chips as they grow and reach their potential.
Pleasingly, the QSML ETF has solid diversification across both sectors and countries, so it has lower risks than if its portfolio was focused on one industry.
Past performance is not a guarantee of future returns, but the fund has delivered an average return per year of 17.1% over the prior three years. I think this fund can continue to deliver impressive double-digit returns over the long-term thanks to its quality-focused construction strategy.
