When it comes to building wealth in the share market, ASX Small Cap Stocks have the potential to leave big caps behind.
While large companies dominate the headlines, it’s the smaller, more agile businesses that often deliver the biggest growth. Why? Because they can multiply in value — sometimes tenfold or more — something the market giants simply can’t do.
In this article, we break down three big investment lessons from the past 50 years, share real-life examples, and show how Under the Radar Report’s Small Cap Dividend Portfolios have consistently outperformed the market.
Why ASX Small Cap Stocks Can Outperform Big Caps
Small caps can beat the market when you pick the right ones. Just one winning stock can transform your returns, while large caps — as “the market” — simply don’t have the same explosive growth potential.
Lesson 1: Diversification Reduces Risk and Smooths Returns
Owning 15–20 ASX Small Cap Stocks spreads your risk because the ups and downs of individual shares offset each other. This leads to more consistent returns.
Our last three Small Cap Dividend Portfolios have delivered 18.8% average annual returns, compared with just 7.0% from the S&P/ASX All Ords.
Over 16 portfolios, the average return is 15% vs the market’s 6%.
Lesson 2: How ETFs Create Big Opportunities for ASX Small Caps
ETFs buy shares based on index weighting, not company fundamentals. This can push big index stocks to overvalued levels — creating opportunities for small caps to shine.
Example: CBA doubled in value recently as its PE ratio jumped from 15x to 30x.
Lesson 3: Why Dividends Are More Rewarding in Australian Small Caps
Australia’s tax rules make dividends especially valuable thanks to franking credits and low tax rates in superannuation.
In our portfolios, roughly one-third of total returns come from dividends, with the rest from share price growth.
The “Three Bites of the Cherry” Effect in ASX Small Cap Stocks
Some small caps deliver three distinct boosts:
- Survival Boost – Turning loss-making into profit-making.
- Earnings Multiple Re-rating – Market revalues the stock higher.
- ETF Inclusion – Forced buying from index funds drives further gains.
Example: Gentrack (GTK) rose from $1.30 to $9 in three years.
Takeovers: The Hidden Bonus in Small Cap Investing
Around 1 in 4 stocks in our dividend portfolios receive takeover bids, which can supercharge returns.
Why Dividends and Growth Make Small Caps a Winning Combo
Small caps can deliver both tax-effective income and capital growth, giving investors the best of both worlds. Many of our biggest winners, like Northern Star, Austal, and Nick Scali, have delivered tenfold returns.
How to Get Started with ASX Small Cap Stocks
Under the Radar Report specialises in finding profitable, dividend-paying ASX small caps before they hit the mainstream. With consistent outperformance and a proven research approach, we help investors capture life-changing returns.
Our next Small Cap Dividend Report launches in September.
Sign up now to get exclusive access to high-potential ASX Small Cap Stocks.
