Commentary from Industry Leaders

One theme gaining momentum among professional investors is the emerging case for small cap equities. History shows that every major technology cycle follows a consistent pattern - large cap concentration dominates early, before a broader rotation takes hold as the technology spreads through the wider economy. With market concentration currently sitting near record highs, many experienced fund managers believe we are in the early stages of that rotation now, and that the window to position ahead of it remains open.

What makes this cycle particularly interesting is the AI infrastructure buildout. Sustaining the pace of AI development requires enormous investment across power grids, cooling systems, network monitoring and data centre supply chains, most of which sits in the small cap universe and remains well off the radar of mainstream investors. For those willing to look beyond the obvious large cap names, the opportunity set is broad and, for now, largely undiscovered. The top-down noise around tariffs, geopolitics and AI narratives is actually masking what is, beneath the surface, a genuinely constructive earnings environment, with earnings beat rates running at multi-year highs and stock correlations beginning to normalise. These are historically the conditions that reward patient, bottom-up stock selection rather than passive or thematic approaches.

The challenge, of course, is execution. The small cap universe consistently rewards research-intensive investors who are prepared to look beyond standard analyst coverage and conventional screening. The businesses that tend to generate the most durable returns in this space share common characteristics - tight capacity, strong pricing power and management teams focused on compounding value over the long term rather than chasing short-term results. What separates the managers who perform in this space from those who do not comes down largely to the depth and breadth of their research capability, particularly the ability to track second and third-order effects across supply chains, commodity flows and regional dynamics that domestic analysis consistently misses.

For investors currently underweight small caps or sitting on the sidelines waiting for a clearer signal, the data from practitioners suggests the most compelling trigger to add exposure would be evidence of earnings recovery within the small cap index itself, followed closely by a widening of the valuation discount relative to large caps, both of which are worth monitoring closely in the months ahead.

Podcast Series

Our partners at Clime Investment Management release a weekly podcast covering the latest market and economic insights. This week, John Abernethy, Michael Baragwanath and Paul Zwi discuss inflation, employment and the proposed changes to investing in property through an SMSF.

Economic News

In a significant development for SMSF trustees, Prime Minister Albanese and Treasurer Chalmers confirmed on 23 June 2026 that new limited recourse borrowing arrangements (LRBAs) for residential property inside SMSFs will be banned, as part of the deal struck with the Greens to secure Senate passage of the broader Tax Reform No. 1 Bill.

Existing arrangements are fully grandfathered, and contracts already signed before the ban's commencement date are protected, even where settlement or loan approval is yet to occur. With the bill expected to pass the Senate before parliament rises on 2 July and royal assent typically following within days, the effective ban date is likely to fall around mid-August 2026.

Importantly, the legislation does not prevent SMSFs from investing in residential property altogether - it removes the borrowing pathway only, with LRBAs for commercial and business real property remaining fully available.

Market Snapshot

• Australia: ASX at two week low

• United States: Dow 0.1%, S&P 500 -0.00%, Nasdaq -0.5%

• Bonds: US 10-year yield at 4.39%, Australian 10-year yield at 4.73%

• Gold: Increased slightly overnight

Key Events Coming Up

• Thursday 2 July: US Initial Jobless Claims

• Thursday 2 July: US Nonfarm Payrolls (June)

• Thursday 2 July: US Unemployment Rate (June)

Investment Opportunity

Spotlight: Industrial Outdoor Storage - A Sector Worth Watching

One of the more interesting opportunities crossing our desk at the moment sits within a corner of the real estate market that institutional capital is only beginning to formalise: Industrial Outdoor Storage, or IOS.

IOS assets are large-format industrial landholdings used for the storage and marshalling of intermodal containers, heavy equipment and logistics infrastructure. They tend to sit in supply-constrained freight corridors, making them difficult to replicate and strategically essential to the tenants that occupy them.

The opportunity we are currently reviewing involves two assets across Queensland and New South Wales, acquired on a combined basis at what appears to be a meaningful discount to current market benchmarks. Both sites are fully leased on triple-net structures, meaning all outgoings and capital expenditure are recoverable from the tenant, leaving the income stream largely insulated from cost creep. Annual rent reviews are fixed or CPI-linked, providing a degree of inflation protection built directly into the lease terms.

At the fund level, the blended distribution yield is forecast at approximately 7.2% per annum paid monthly, with a target IRR in the 12-14% range post fees over a six-year term. The contracted income from day one sits at $4.1 million per annum across two diversified tenants.

Globally, IOS has attracted significant institutional interest, with several of the world's largest asset managers actively deploying into the sector. Australia is considered to be at an early stage of that institutional formation, which may present a timing advantage for early movers.

This opportunity is wholesale-only and is currently under internal review. We will share further detail with eligible clients once our assessment is complete.