In fact, ASX small-cap shares outperformed the larger companies by almost 2.5 times in 2025. 

The S&P/ASX All Ords Index (ASX: XAO) delivered total returns (capital growth plus dividends) of 10.56% last year.

This index contains the 500 largest ASX listed companies, and accounts for roughly 84% of Australia's equity market. 

Meanwhile, the S&P/ASX Small Ords Index (ASX: XSO), which tracks companies ranked 101 to 300 by market cap, delivered a total return of 24.96%.

However, it appears the pendulum has now swung the other way in 2026. 

Since the start of the year, the Small Ords Index has dropped approximately 12%. 

This fall is significantly further than the All Ords Index which is down roughly 3% in the same period. 

Why are they struggling in 2026?

A small-cap stock typically has a market capitalisation ranging from a few hundred million to $2 billion.

Subsequently, these companies are much more sensitive to interest rates than bigger companies.

One reason for this is that these stocks rely more on debt and external funding. 

Additionally, many are not yet profitable, which means valuations depend heavily on future growth.

In 2026, Australia has seen elevated inflation, causing the RBA to deliver two interest rate hikes.

It seems markets are now repricing for tighter financial conditions, causing smaller companies to be hit disproportionately. 

In essence, the Small Ords Index isn't falling because "small caps are broken" – it's falling because:

• Macro conditions are flipping against them
• Liquidity is tightening
• Risk appetite dropped suddenly.

Is there any upside?

With many small-caps falling throughout the start of 2026, investors might be considering swooping in on what could appear to be a relative value. 

Some notable ASX small-caps that have fallen include: 

• Web Travel Group Ltd (ASX: WEB)
• Catapult Sports Ltd (ASX: CAT)
• Elders Ltd (ASX: ELD). 

These companies have drawn some positive outlooks from brokers, however it's important to consider that in the short term, returns could be minimal, if these economic conditions persist.

Alternatively, if investors are aiming for a more broad, diversified entry into the small-cap market, there are several ASX ETFs to consider: 

• iShares S&P/ASX Small Ordinaries ETF (ASX: ISO) – designed to track the performance of small-capitalisation Australian equities included in the S&P/ASX 300 index, but not in the S&P/ASX 100 index.
• Vanguard MSCI Australian Small Companies Index ETF (ASX: VSO) – Tracks the MSCI Australian Shares Small Cap Index. 
• VanEck Vectors Small Companies Masters ETF (ASX: MVS) – offers exposure to a diversified portfolio of roughly 61 ASX-listed small companies. 

The post What's happened to ASX small-caps in 2026? appeared first on The Motley Fool Australia.

Those ETFs include iShares Core S&P/ASX 200 ETF (ASX: IOZ) and iShares S&P/ASX Small Ordinaries ETF (ASX: ISO).

IOZ ETF delivered a solid 10.36% return for 2025 in line with the strength of the benchmark S&P/ASX 200 Index (ASX: XJO) last year.

The ISO ETF outperformed, producing a 24.54% total return as ASX small-cap shares benefitted from three interest rate cuts.

Small-caps have market valuations of between a few hundred million dollars and $2 billion, and carry more debt to fund their growth.

Perpetual portfolio manager Alex Patten said 2025 represented the first time that small-caps had outperformed "in a number of years".

Patten said:

… now that rates are starting to come down, we're seeing more interest in small and micro caps and bit more liquidity in the market.

How much will ASX ETF investors receive today?

We have summarised the dividend amounts that investors will receive today, rounded to two decimal places.

The post Own IOZ or ISO ETFs? It's dividend payday for you! appeared first on The Motley Fool Australia.

Or perhaps iShares S&P/ASX 20 ETF (ASX: ILC) or iShares S&P/ASX Small Ordinaries ETF (ASX: ISO)?

BlackRock has just announced the estimated distributions (dividends) for its ASX iShares exchange-traded funds (ETFs).

BlackRock will pay its next round of dividends on 19 January.

If you own any of these ETFs and want to top up your holdings ahead of this round of payments, you'd better be quick.

The ex-dividend date is tomorrow.

How much will iShares ASX ETF investors receive?

Here are the estimated dividends that investors will receive on 19 January.

The amounts will be finalised on Thursday, which is the record date.

Prefer to reinvest your dividends?

A distribution reinvestment plan (DRP) is available for all of the ASX iShares ETFs above.

A DRP allows investors to reinvest their distributions automatically each time dividends are paid.

It's a helpful set-and-forget option for investors seeking compounding returns over the long term.

BlackRock will be accepting DRP elections up until 5pm today.

The post Own ASX IOZ or other iShares ETFs? Dividends just announced! appeared first on The Motley Fool Australia.

Traditionally, small-cap stocks have a market capitalisation ranging from a few hundred million to $2 billion.

The upside can be greater for these companies that still are largely unproven or are perhaps yet to generate profit.

But they also tend to be more volatile than larger-cap stocks.

The dust settles after earnings season

The report from VanEck shows the market reaction to earnings season was more intense than in years gone by. 

According to the ETF provider, most companies (62%) reported in-line results, with 22% delivering beats and slightly outpacing misses (16%).

However, VanEck suggests market reactions did not reflect this 'solid' result. 

One in five reporting companies moved more than 10% after they announced their results. 

Analysing the results on a market-weighted basis, mid-cap companies, as represented by the S&P/ASX MidCap 50 Index, led earnings beats this season, with a net-beat rate of 2.9% versus the S&P/ASX 200 Index's 1.15%.

Small caps battered but not beaten

VanEck also said that small caps, as represented by the companies in the S&P/ASX Small Ordinaries Index (ASX: XSO), performed the worst from an earnings per share (EPS) surprise perspective.

What is interesting is that after the earnings season, an analysis of the consensus 12-month price targets shows that small caps sit highest.

The outlook for small companies is brighter. The RBA is starting to cut rates, lowering capital costs. The economic outlook has led to small companies having the highest price-target revisions, signalling the market's conviction in Australian small caps.

VanEck said that historically, during this type of cycle, small caps have offered more upside than large caps because they have fallen further or not kept pace with large caps as GDP growth slowed. 

Importantly, the provider did also reinforce that the Small Ords has delivered lower cumulative returns relative to the broader, large-cap dominated S&P/ASX 200 Index (ASX: XJO) over the long term.

This reflects the volatility that may come with this investment class compared to blue-chip stocks.

How do investors gain exposure?

Based on the research from VanEck, investors who have been eyeing specific small caps may be well-positioned to buy the dip, with economic tailwinds potentially coming in the short term. 

Alternatively, there are ASX ETFs that offer more diversified exposure to the small-cap sector. 

For example, the VanEck Vectors Small Companies Masters ETF (ASX: MVS). 

It tracks an index consisting of 60 small-cap ASX-listed companies domiciled in Australia or New Zealand with strong growth characteristics and sound fundamental indicators of quality.

It has a very evenly distributed portfolio, with its largest exposure representing just 2.7% of the fund. 

The fund has risen more than 17% YTD. 

Other ASX ETFs tracking small-caps include: 

• SPDR S&P/ASX Small Ordinaries Fund (ASX: SSO) – Tracks the returns of the Small Ordinaries Index, which are companies included in the S&P/ASX 300 Index (ASX: XKO), but not in the S&P/ASX 100 Index (ASX: XTO).
• iShares S&P/ASX Small Ordinaries ETF (ASX: ISO) – Also measures the performance of small-capitalisation Australian equities included in the ASX 300 Index, but not in the ASX 100 Index.
• Vanguard MSCI Australian Small Companies Index ETF (ASX: VSO). 

The post Why now is a good time to turn to small-cap ASX ETFs appeared first on The Motley Fool Australia.

This follows a big session on Wall Street, with the benchmark S&P 500 Index (SP: .INX) reaching another record close of 6,656.8 points.

Today's strong market appears to be having an outsized impact on ASX exchange-traded funds (ETFs).

At the time of writing, an extraordinary number of ETFs have hit new 52-week highs, or multi-year highs, on the back of today's exuberance.

In fact, at the time of writing, 68 ASX exchange-traded funds have hit new high prices.

Macroeconomic elements may be playing a role in the market surge.

Yesterday, we had the news that the US Fed Reserve has cut interest rates and Australia's jobless rate held steady last month.

ETFs are a favoured way for Aussie investors to access international markets without the hassle of trading on an overseas exchange.

The amazing three-year run for US equities has inspired Aussie investors to think beyond the ASX 200 and the local banks and miners.

The popularity of ETFs is a global trend playing out strongly in Australia.

Betashares data shows Australian investors ploughed a record $5.28 billion into ASX ETFs in July alone.

68 ASX shares setting new records today

Here is a sample of the 68 ASX exchange-traded funds smashing new highs today.

The post 68 ASX ETFs smash multi-year highs amid strong trading on Friday appeared first on The Motley Fool Australia.

While it's true your ETF isn't going to double in value in one day like a speculative penny stock, funds can still far outpace indexes like the S&P/ASX 200 Index (ASX: XJO). 

To prove this point, here are three fundamental ASX ETFs that have beaten the ASX 200 so far this year. For context, the ASX 200 is up 7.95% YTD. 

iShares S&P/ASX Small Ordinaries ETF (ASX: ISO)

The first ASX ETF with strong returns so far in 2025 is ISO ETF. 

The fund aims to provide investors with the performance of the S&P/ASX Small Ordinaries Accumulation Index, before fees and expenses. 

The index is designed to measure the performance of small-capitalisation Australian equities included in the S&P/ASX 300 index, but not in the S&P/ASX 100 index.

It is a very balanced ETF, made up of roughly 200 holdings, with none representing more than 1.85%. 

It has risen an impressive 15.72% so far in 2025 – almost doubling the returns of the ASX 200. 

Vanguard Ethically Conscious Australian Shares Fund (ASX: VETH)

As the name suggests, this fund provides exposure to the FTSE Australia 300 Choice Index. 

The index excludes the securities of companies that have a specified level of business involvement in fossil fuels, nuclear power, alcohol, tobacco, cannabis, gambling, adult entertainment or weapons. 

The index also excludes companies that the index provider determines are involved in controversial conduct related to principles of the United Nations Global Compact.

The fund has risen 11.43% YTD. 

It has a significant exposure (more than 27%) to the big four bank shares. At the time of writing is made up of 234 total holdings. 

Vanguard MSCI Australian Small Companies Index ETF (ASX: VSO)

This fund provides exposure to small companies listed on the Australian Securities Exchange. 

The sectors in which the ETF invests include industrials, materials and consumer discretionary. 

VSO ETF offers potential long-term capital growth, which can be typical of the small company market sector.

So far in 2025, the fund has risen 12.98%, far ahead of the ASX 200 index. 

Since its inception in 2011, it has provided more than 10% annualised returns. 

It is currently made up of 184 holdings, with no holding representing more than 2.35% of the fund. 

The post 3 Australian focused ASX ETFs racing ahead of the ASX 200 this year appeared first on The Motley Fool Australia.

Let's take a look at how much you'll receive.

If you chose to participate in the distribution reinvestment plan (DRP) for any of these iShares ETFs, we've provided the DRP prices, too.

It's dividend day for IVV ETF investors and others

Here is a summary of the dividend amounts that people invested in these iShares ETFs will receive today.

The iShares S&P 500 ETF (ASX: IVV) will pay 17.371762 cents per unit. The DRP price is 62.963308 cents.

The iShares Global 100 ETF (ASX: IOO) will pay 144.788408 cents per unit. The DRP price is 162.474210 cents.

The iShares Core S&P/ASX 200 ETF (ASX: IOZ) will pay 28.004199 cents per unit. The DRP price is 34.308186 cents.

The iShares Asia 50 ETF (ASX: IAA) will pay 317.017910 cents per unit. The DRP price is 120.104281 cents.

The iShares Core Composite Bond ETF (ASX: IAF) will pay 71.863797 cents per unit. The DRP price is 103.551430 cents.

The iShares MSCI Emerging Markets ETF (ASX: IEM) will pay 73.321424 cents per unit. The DRP price is 73.626987 cents.

The iShares Europe ETF (ASX: IEU) will pay 201.329885 cents per unit. The DRP price is 95.752689 cents.

The iShares MSCI South Korea ETF (ASX: IKO) will pay 142.553569 cents per unit. The DRP price is 111.875719 cents.

The iShares S&P/ASX 20 ETF (ASX: ILC) will pay 35.765356 cents per unit. The DRP price is 32.314116 cents.

But wait, there's more…

The iShares Government Inflation ETF (ASX: ILB) will pay 45.856295 cents per unit. The DRP price is 126.033139 cents.

The iShares MSCI Japan ETF (ASX: IJP) will pay 99.526157 cents per unit. The DRP price is 114.127567 cents.

The iShares S&P Mid-Cap ETF (ASX: IJH) will pay 15.907814 cents per unit. The DRP price is 47.288231 cents.

The iShares S&P Small-Cap ETF (ASX: IJR) will pay 56.095190 cents per unit. The DRP price is 167.136029 cents.

The iShares S&P/ASX Small Ordinaries ETF (ASX: ISO) will pay 5.747119 cents per unit. The DRP price is 4.931342 cents.

The iShares Global Consumer Staples ETF (ASX: IXI) will pay 103.428384 cents per unit. The DRP price is 98.952519 cents.

The iShares Global Healthcare ETF (ASX: IXJ) will pay 135.427098 cents per unit. The DRP price is 130.135897 cents.

How did ASX IVV perform in FY25?

The IVV ETF seeks to track the performance of the S&P 500 Index (SP: .INX) before fees.

US shares outperformed ASX shares again in FY25, and IVV ETF investors reaped the benefits.

The IVV ETF increased by 15.02% and delivered total returns (including dividends) of 15.13%, according to BlackRock.

Data from S&P Global shows the S&P 500 rose by 13.63% to close at 6,204.95 points on 30 June.

If we add dividends, the S&P 500's total gross return for the year was 15.16%.

The difference between the growth rate of the S&P 500 and the IVV ETF represents the impact of the currency exchange.

In Australian dollar terms, S&P Global data shows the S&P 500 rose by 15.8%, with total gross returns of 17.36%.

The post Own IVV ETF or other iShares ASX ETFs? It's dividend payday for you! appeared first on The Motley Fool Australia.

According to the final distributions schedule, iShares will pay investors next Friday, 11 July.

A distribution reinvestment plan (DRP) is available for all iShares ETFs.

iShares has also announced the DRP prices for this next round of distributions. We have included those amounts below.

It's payday for IVV ETF investors and others

Here is a summary of the dividend amounts that people invested in this selection of iShares ETFs will receive on 11 July.

The iShares S&P 500 ETF (ASX: IVV) will pay 17.371762 cents per unit. The DRP price is 62.963308 cents.

The iShares Global 100 ETF (ASX: IOO) will pay 144.788408 cents per unit. The DRP price is 162.474210 cents.

The iShares Core S&P/ASX 200 ETF (ASX: IOZ) will pay 28.004199 cents per unit. The DRP price is 34.308186 cents.

The iShares Asia 50 ETF (ASX: IAA) will pay 317.017910 cents per unit. The DRP price is 120.104281 cents.

The iShares Core Composite Bond ETF (ASX: IAF) will pay 71.863797 cents per unit. The DRP price is 103.551430 cents.

The iShares MSCI Emerging Markets ETF (ASX: IEM) will pay 73.321424 cents per unit. The DRP price is 73.626987 cents.

The iShares Europe ETF (ASX: IEU) will pay 201.329885 cents per unit. The DRP price is 95.752689 cents.

The iShares MSCI South Korea ETF (ASX: IKO) will pay 142.553569 cents per unit. The DRP price is 111.875719 cents.

The iShares S&P/ASX 20 ETF (ASX: ILC) will pay 35.765356 cents per unit. The DRP price is 32.314116 cents.

Here are some more ASX ETFs…

The iShares Government Inflation ETF (ASX: ILB) will pay 45.856295 cents per unit. The DRP price is 126.033139 cents.

The iShares MSCI Japan ETF (ASX: IJP) will pay 99.526157 cents per unit. The DRP price is 114.127567 cents.

The iShares S&P Mid-Cap ETF (ASX: IJH) will pay 15.907814 cents per unit. The DRP price is 47.288231 cents.

The iShares S&P Small-Cap ETF (ASX: IJR) will pay 56.095190 cents per unit. The DRP price is 167.136029 cents.

The iShares S&P/ASX Small Ordinaries ETF (ASX: ISO) will pay 5.747119 cents per unit. The DRP price is 4.931342 cents.

The iShares Global Consumer Staples ETF (ASX: IXI) will pay 103.428384 cents per unit. The DRP price is 98.952519 cents.

The iShares Global Healthcare ETF (ASX: IXJ) will pay 135.427098 cents per unit. The DRP price is 130.135897 cents.

The post Own IVV ETF or other iShares ASX ETFs? Next dividends and DRP prices revealed… appeared first on The Motley Fool Australia.

Small-cap companies tend to do better when rates are lower because this reduces the cost of the debt they need to carry to keep on investing in their growth and development.

ETF issuer Vanguard says small-cap options are already more popular with US investors following the Federal Reserve's two interest rate cuts this year.

There was the bigger-than-expected first rate cut of 50 basis points in September, followed by a second rate cut of 25 basis points this month.

In the latest quarterly Vanguard ETF Industry Perspectives newsletter, equity index senior investment product manager, Andrey Kotlyarenko said money flows into small-cap US ETFs have been increasing.

Historically, he said this was a pattern that usually coincided with interest rate cuts.

Kotlyarenko commented:

The Fed's 50-basis-point rate cut—its first cut since before the Fed began raising rates in response to the inflationary spike driven by the COVID-19 pandemic—created a fresh opportunity to look closely at small-cap equities, which historically have outperformed the broader market after rate cuts.

The lower cost of capital that has followed rate cuts has correlated with investors showing greater interest in smaller companies, whose growth prospects can be hampered when borrowing costs are high.

Historical link between small-cap ETFs and interest rates

With further rate cuts expected in many countries next year, including Australia, Kotlyarenko said investors appeared more bullish on small-cap stocks now.

Kotlyarenko said Q3 inflows into small-cap ETFs in the US had leapt to $16.5 billion. This was higher than the inflows over the previous six months, which only totalled $9.4 billion.

The trend of small-cap ETFs performing better when rates are lower or falling is universal across the most recent historical rate-cutting cycles, Kotlyarenko said.

He commented:

During other rate-cutting cycles—such as the dot-com bubble, the global financial crisis, and the post-COVID pandemic recovery—interest in small-caps spiked.

In the 12 months following those initial rate cuts, returns of the four main US small-cap indexes performed strongly.

More to the point, each of these indexes outperformed the broad equity market during those past rate-cutting cycles.

But crucially, each small-cap index isn't built quite the same as another, so their performances can diverge.

For example, during the first year of COVID-19, when central banks worldwide slashed interest rates, the four main US small-cap indexes soared.

However, there was a 6.66% disparity in performance between the No. 1 performing index, the Russell 2000, and the No. 4 performing index, the CRSP US Small Cap Index.

Let's examine some of the ASX ETFs available to Aussie investors that track small-cap stocks either here or overseas, and review how they are performing in the year-to-date (YTD) and over the past 12 months.

How are small-cap ASX ETFs performing?

In 2024, we have indeed seen an increase in the unit price of several ASX small-cap ETFs.

Not only that, but some of them are outperforming ASX ETFs that track the ASX 200 or ASX 300, which incorporate large-caps like Commonwealth Bank of Australia (ASX: CBA) and BHP Group Ltd (ASX: BHP).

Below are four examples of ASX ETFs tracking small-cap shares. Take note of their year-to-date and 12-month growth rates compared to those of two peers that track the ASX 200 and ASX 300.

The iShares Core S&P/ASX 200 ETF (ASX: IOZ) tracks the S&P/ASX 200 Index (ASX: XJO). On Tuesday, it is trading for $33.84 per unit, up 9.7% YTD and 19.84% over 12 months.

The Vanguard Australian Shares Index ETF (ASX: VAS) tracks the S&P/ASX 300 Index (ASX: XKO). Today, it is trading for $104.26 per unit, up 10.69% YTD and 20.12% over 12 months.

ASX ETFs tracking Aussie small-cap shares

iShares S&P/ASX Small Ordinaries ETF (ASX: ISO)

The iShares S&P/ASX Small Ordinaries ETF is trading at $4.85 per unit. It's up 6.59% in 2024 and up 17.15% over the past 12 months.

The ISO ETF aims to track the performance of the S&P/ASX Small Ordinaries Accumulation Index, before fees.

The index measures the performance of small-cap ASX shares in the ASX 300, excluding the S&P/ASX 100 Index (ASX: XTO).

The ETF's top three underlying holdings are Life 360 Ltd (ASX 360), Alcoa Corporation CDI (ASX: AAI), and Zip Co Ltd (ASX: ZIP). The management fee is 0.55%.

Vanguard MSCI Australian Small Companies Index ETF (ASX: VSO)

The Vanguard MSCI Australian Small Companies Index ETF is trading at $69.76 per unit. It's up 9.86% in 2024 and up 18.44% over the past 12 months.

The VSO ETF aims to track the performance of the MSCI Australian Shares Small Cap Index before fees. The index includes stocks that pass certain liquidity and market capitalisation criteria.

Its top three holdings are Evolution Mining Ltd (ASX: EVN), NextDC Ltd (ASX: NXT), and JB Hi-Fi Ltd (ASX: JBH). The management fee is 0.3%.

ASX ETFs tracking US or international small-cap shares

iShares S&P Small-Cap ETF (ASX: IJR)

The iShares S&P Small-Cap ETF is trading at $196 per unit. It's up 22.68% in 2024 and up 33.79% over the past 12 months.

The IJR ETF aims to track the performance of the S&P Small-Cap 600, before fees.

The index measures the performance of the small-cap segment of the US stock market. It is comprised of 600 companies with a market capitalisation of between US$1 billion and US$6.7 billion.

The ETF's top three equity holdings are Mueller Industries Inc (NYSE: MLI), Carpenter Technology Corporation (NYSE: CRS), and Comerica Inc (NYSE: CMA). The management fee is 0.07%.

Vanguard MSCI International Small Companies Index ETF (ASX: VISM)

The Vanguard MSCI International Small Companies Index ETF is trading at $70.31 per unit. It's up 17.84% in 2024 and up 25.06% over the past 12 months.

The VISM ETF seeks to track the returns of the MSCI World ex-Australia Small Cap Index (with net dividends reinvested) in Australian dollars before fees.

The index tracks the performance of small-cap companies in 22 developed countries (excluding Australia). They include the United States, Canada, Japan, and Europe.

Its top three holdings are Carvana Co (NYSE: CVNA), Interactive Brokers Group, Inc. (NASDAQ: IBKR), and Nutanix Inc (NASDAQ: NTNX). The management fee is 0.32%.

The post Here's why small-cap ASX ETFs are on the rise appeared first on The Motley Fool Australia.

The reasoning is that they have underperformed compared to their larger cap sisters over the last two years as inflation and rising interest rates forced investors to flee for more conservative options.

But now with the tantalising prospect of rate cuts looming, it could be time for sweet revenge.

"The fundamental setup for small cap returns in 2024 is compelling," the analysts at LSN said in a memo to clients.

"Valuations are attractive, the earnings outlook is robust, and tailwinds from an improved economic backdrop historically provide active small cap managers with outsized returns."

They noted that even Australia's sovereign wealth fund, the Future Fund, has started a new program to buy small-cap ASX shares. 

"ASX small caps have underperformed the ASX top 100 by 25% since August 2021 and are now trading at substantial discount, despite the outlook for significantly more earnings growth," read the LSN memo.

"This has not gone unnoticed in capital markets with a recent flurry of M&A from financial investors and industry players taking advantage of the environment."

How to grab a piece of the small-cap action

So, if you believe in this thesis, how do you take advantage?

Of course, you can buy ASX small caps directly. But that requires much research and due diligence, which is all the more harder with less information available to the public than the big businesses.

One shortcut might be to buy an exchange-traded fund (ETF) that invests in smaller ASX businesses.

As well as cutting down on the required research, such funds have the advantage of providing immediate diversification to potentially smooth out the volatility of individual stocks.

Here are four ETFs on the ASX that invest in small-cap equities:

The post Which ASX ETFs could explode if small caps surge in 2024? appeared first on The Motley Fool Australia.

What I have noticed is that after underperforming the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) over the past five years, the S&P/ASX Small Ordinaries (Index: ^AXSO) (ASX: XSO) has been making a comeback over the past six months.

That suggests that while the companies that dominate the ASX are struggling for growth, smaller companies are outperforming – and that suggests it is there where investors should be looking for companies that can beat the market.

The Small Ordinaries index represents the small cap members of the S&P/ASX 300 index but excludes those that are in the ASX 100.

If investors don't want to pick the shares themselves, they can always invest in exchange traded funds that track the performance of the index, including the iShares Small Ordinaries Index Fund (ASX: ISO) or the SPDR S&P/ASX Small Ordinaries Fund (ASX: SSO).

However, the Small Ords also includes what I would call non-investment grade companies, including a number of miners and energy companies. With their outlook dependent on commodity prices, investors may want to consider 'stock picking' and selecting from a number of quality industrial companies.

These companies include the following eleven…

Source: Google Finance

As you can see, these aren't what many would consider as 'small' companies, but they could all definitely grow up to be much bigger. That's one of the advantages these companies have over their larger counterparts – in many cases, they have more opportunities for growth.

While a number of the companies in the table above may appear nose-bleeding expensive on a P/E ratio basis, it's important to remember that if the companies are growing strongly, those P/E ratios can come down very quickly indeed.

Foolish takeaway

There's one other bonus for investors investing in smaller companies and that's the fact that they are generally under-researched and out of the mainstream media spotlight. That means more chance that the market will misprice the shares – an advantage for Foolish investors to make the most of.

The post Why investors need to consider these 11 smaller companies now appeared first on The Motley Fool Australia.