Fund managers are turning to Australian small-cap stocks instead of global equities, driven by expectations of aggressive rate cuts at home ahead of the Reserve Bank’s second reduction in borrowing costs in nearly five years.

The Reserve Bank is widely expected to lower the cash rate by a quarter of a percentage point to 3.85 per cent next week. Beyond that, investors anticipate two more reductions by Christmas. In contrast, the US Federal Reserve is only expected to cut its benchmark rate in September and once more before the end of 2025.