What the market is missing in mid-caps right now

Markets have delivered no shortage of mixed messages this year. But below the daily swings lies a more consistent theme: businesses are evolving at speed. Some are quietly compounding; others are being forced to reset; a few are emerging stronger than expected.

Mid-caps have been at the centre of that evolution.

For investors, that dynamism can be both energising and unforgiving. Companies rise and fall through index bands, sentiment turns quickly, and fundamentals often reassert themselves long before the market rewards them. 

But for those who track businesses through their full lifecycle, from early promise to genuine scale, this constant movement isn’t noise at all. It’s the edge.

Few understand that edge better than David Lloyd, Co-Head of Emerging Companies and Portfolio Manager at Ausbil Investment Management. 

When David and I worked together at Ausbil, we spent some time on the road attending roadshows where he presented. He brought a down-to-earth, humble energy to every meeting, could lighten a room with humour, and still spot nuances others overlooked. 

What always stood out was his constant curiosity, a willingness to refine his view and deepen his understanding, even with years of experience behind him. The kind of mindset that separates good investors from exceptional ones. 

In this week’s Q&A, Lloyd shares where he’s finding the most compelling developments in the mid-cap universe, how he navigates an investable landscape that’s always shifting, and why sticking to fundamentals still beats reacting to the scoreboard.

What’s your most recent investment and why?

We have added a couple of new additions to the portfolio recently, but Tuas (ASX: TUA) is the one I would call out as most recent, and potentially one of our most exciting. 

Ausbil has been tracking Tuas through our portfolios for some time, having begun as a micro-cap position, then a small-cap position, and now, as the company is developing and growing, it has become a compelling mid-cap stock.

Tuas is a Singaporean telecommunications company. Recently, through its subsidiary, Simba Telecom, it acquired M1 Limited. 

Pending regulatory approvals, Tuas will likely become the second largest telco operator in Singapore, which could offer mobile, broadband, enterprise and fibre services across Singapore to consumer, wholesale, enterprise and government customers. 

The current regulatory uncertainty is overplayed in our view, and we see this as an opportunity to add to the portfolio. We like the earnings outlook for Tuas.

Which investment did you add to your watchlist this week?

It sounds cliché, but the investable universe is the watchlist. 

That said, mid-caps are a constantly evolving part of the market due to quarterly index changes, so I have recently added potential index additions to the watchlist. 

One of the unique features of mid-caps is that the investable universe is always evolving due to index changes, most notably the promotion of successful small caps into mid-cap indexes and the return of fallen angels to mid-caps from large-cap indexes.

We tend to know the small-cap companies that run up into our universe quite well, especially the ones we have owned as a house in our small and micro-cap strategies. We already tend to have a strong view on these. 

However, those that offer new opportunities for returning to the mid-cap universe have typically been underperforming for some time and can present real opportunities. This could be due to temporary challenges in their business or sector, a change in management, or various missteps. 

A great example of this is Mineral Resources (ASX: MIN), which was negatively impacted by governance concerns and the outlook for commodity prices, both of which have since resolved, revealing a compelling opportunity in green metals and iron ore.

What is the most recent investment you have trimmed or sold, and what drove this decision?

I typically don’t hold that much cash in the portfolio, so if we add new positions (such as TUA), they have to be funded from somewhere. This can be from trimming multiple names or exiting a stock that no longer fits our process, portfolio objectives, or positioning. 

The most recent exit was Virgin Australia (ASX: VGN), given the rise in fuel refining margins was likely to limit positive earnings surprises as fuel hedges begin to roll off. 

In addition, the airline industry is incredibly competitive, and while the industry structure has improved significantly, especially through pricing rationalisation, we believe there is a risk to FY26/27 consensus earnings for Virgin Australia.

What’s your favourite chart or data point from this week?

Life360 (ASX: 360) has been a position we have held for some time, and it has proven to be a good call given the business's performance and the in-built growth it is adding through new enhancements like pet tracking. 

If you look at their share price against their earnings revisions, you can see how the development of their offering, the stellar growth in monthly users, and a deepening in their ad revenue model are driving upward earnings revisions.

Life360 has shown investors positive upward earnings momentum

Life360’s most recent quarterly update underscored the strength of the business with the company beating on revenue, EBITDA and NPAT, but the stock was subsequently sold off on concerns regarding growth in monthly active users (MAU). 

MAU was actually 19% year-on-year, whereas consensus was at 22% growth. We still think MAU growth is likely to be strong with the launch of pet care, the anticipated development of elder care, and significant room for significant increases in penetration ex-US markets globally.

What was your weekly high – a standout market moment or highlight?

In what was a dour week, seeing lithium equities perform strongly was pleasing, given we were positioned early for the potential turnaround. 

Underlying the lithium price is the emergence of energy storage systems (ESS) batteries, which are adding consistent demand for lithium, which perhaps had not been priced to date. 

In this space, we are holding Pilbara Minerals (ASX: PLS), and while 2025 has seen a rocky road for lithium, we are starting to be rewarded by the fundamentals underpinning this position.

What was your weekly low – a market disappointment or challenge?

Seeing strong earnings results met with lower share prices! 

It always hurts when you find superior earnings, but for some reason, the market’s short-term reaction is negative. 

Obviously, we believe earnings growth and consistent positive upgrades play out in the longer term in higher share prices. Our focus on earnings and earnings growth helps filter the noise and gives us better insights into the profile of a company.

What first drew you to markets or this sector and what continues to keep you inspired today?

The markets are just so dynamic, and there is so much information to absorb, so no two days are the same, and it’s a huge challenge to try and keep on top of it. I love that challenge! 

While we are very focused on macro and fundamentals, there is a live scoreboard to assess how you are travelling, and it is exciting to constantly be working towards maintaining that winning edge. It’s a game that doesn’t stop, and that is what keeps me inspired to deliver results for our investors. 

One perverse aspect of markets is that we think the scoreboard is often wrong, and that is also what excites me, as sticking to your fundamentals and investment thesis can deliver meaningful reward. 

Sometimes the best football teams lose on the scoreboard on some days, but if they are the best, they tend to prevail across the season. 

What’s one piece of advice you’d give to new investors?

Listen to those with more experience than you have. You may not immediately agree with their views, but experience is a huge advantage in markets. 

If you don’t have a mentor, find one personally. 

That may be someone who is an investor, or could be someone outside of investing whose values, achievements and approach to life inspire you.

How do you unwind when you’re not thinking about the market?

I love family holidays and watching the kids play sports. I also love the challenge and camaraderie of golf.