A mixed earnings season and a raft of profit downgrades have led to money flowing out of smaller, riskier companies and back into the large, blue-chip stocks.
Investors who did their homework and put their money into small-cap stocks in the past few years have been duly rewarded, but this earnings season appears to hail the end of the small-cap outperformance and a shift in sentiment.
"Large-cap fund managers have been investing in smaller companies the last few years because their traditional holdings were looking a bit soggy," said Victor Gomes, portfolio manager of the UBS small-cap fund.
"This earnings season we've probably seen a bit of a reversal of that trend, especially as those managers realise the rewards lie for those who are picking the correct stocks."
Over the last six months, small caps have slid 5 per cent while their bigger counterparts have eked out a 5 per cent gain.
According to Zenith Investment Partners, which looks at small cap fund manager performance throughout the sector, not since 2005 has the median active manager experience sustained underperformance relative to the benchmark on a rolling-one year period basis.
While resources held up their end of the bargain, managing to meet or even smash their profit forecasts, the small stocks that once piqued the interest of dabbling fund managers have been savaged.
Investors punished Genworth Mortgage Insurance after the company announced a 5 per cent dive in underlying net profits. The stock crumbled 18 per cent after the report and has managed to claw back only 3.5 per cent to trade at $2.83.
Yowie Group, which attracted considerable support earlier in 2016 as the chocolate confectionery manufacturer signed key distribution agreements with US retailer Walmart, has suffered a near 30 per cent dive in value since the company reported at the beginning of February. The Yowie management conceded that sales over 2017 were unlikely to live up to the original forecast.
'Deliver or else'
"Companies that missed their guidance have suffered terribly at the hands of investors who were relying on the eager market consensus, which has pushed up P/E," said John Murray, managing director of Perennial Value Management.
"There's a general feeling of 'deliver or else' and if companies fail to deliver their share prices get hammered."
Shares in vacuum cleaner group Godfrey's fell as much as 25 per cent after the company announced heavy write-downs during the reporting season.
Investors had also pushed up the value of OFX, formerly OzForex, earlier in 2016, as the fintech company seemed to have all the ingredients of a strong growth business.
However, it announced an earnings downgrade in early February and removed chief executive Richard Kimber. Investors pushed the panic button and sent the shares tumbling almost 30 per cent. The stock has managed to recover only slightly and trades about $1.31.
It was resource companies that kept the fire burning in the small-cap end of the market, with an astonishing recovery in iron ore and coal prices underpinning a slew of healthy earnings reports.
Indeed, an oil price that has managed to firm above $US50 a barrel has also breathed life into a previously uncertain energy sector.
"They've managed to do a remarkable job cutting costs and streamlining their businesses," Mr Gomes said. "They've been able to increase their margins, particularly the iron ore players, and it will set them up for the rest of 2017."