A new report from VanEck has highlighted the impressive resilience of the Australian market in recent years.
It has weathered the pandemic, inflation and the fastest interest-rate tightening cycle in decades without falling into recession.
However VanEck believes this resilience should not be mistaken for strength.
While inflation has eased from its peak, underlying price pressures remain among the highest in the developed world, business hiring intentions are softening and consumer confidence remains subdued. Together, they point to an economy that is slowing rather than stalling.
This combination of factors reinforces that investors' portfolios should not be overexposed to the big banks and miners that dominate the ASX 200.
VanEck contends that there are several reasons investors should look beyond simply tracking the S&P/ASX 200 Index (ASX: XJO).
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Trailing global equities
VanEck argues that simply buying the index is not always the most effective way to build wealth.
The past financial year has brought this case to the fore more than ever.
Since the start of 2010, the S&P/ASX 200 has trailed the MSCI World, which tracks developed markets globally, in 11 of the past 17 financial years.
But the bigger concern is that the underperformance is getting worse. FY26 saw the underperformance run extend to four consecutive years, and the second biggest performance gap since 1996.
If Australia's economy is entering a period of more subdued growth, investors should not be surprised if earnings growth becomes harder to find domestically. That strengthens the case for looking beyond a standard S&P/ASX 200 index fund.
The case for mid-caps
According to the report, one option for investors looking to avoid overconcentration is to target mid-caps.
One way to do this is through the VanEck S&P/ASX MidCap ETF (ASX: MVE).
The fund focuses on Australia's mid-cap companies, a part of the market that has historically offered an attractive balance between earnings growth and business maturity.
VanEck believes this could be a "sweet spot" of the market.
They are typically more established than emerging small companies but still have meaningful scope to grow earnings. Analysts expect company profits in this part of the market to grow much faster than Australia's largest companies, while valuations are still around their long-term averages.
MVE provides exposure to this often-overlooked part of the market through the S&P/ASX MidCap 50 Index. For investors looking to complement a large-cap Australian allocation, it offers access to businesses with greater growth potential, without moving too far down the risk spectrum.
