In a recent update, Lonsec said the S&P/ASX Small Ordinaries Index returned 10.2 per cent in 2015, with micro caps returning 12 per cent – outperforming the S&P/ASX 200, which returned 2.6 per cent.

“Despite raised volatility at the start of 2016, Australian small caps have been the surprise performers,” Lonsec said.

Lonsec general manager of equities Peter Green said: “Australian small caps have turned the market on its head.”

“Small caps have provided better insulation from the recent sell-off, which is not what you would usually expect.”

Mr Green said the small-cap sector’s performance is significant, as smaller companies are usually hard hit when markets fall.

In 2015, however, small caps benefited from being underweight in resources stocks.

According to Lonsec, the highest-performing small-cap fund returned 51.8 per cent in 2015, with the lowest returning -2.9 per cent.

While 2015 came in as positive, Mr Green said small-cap managers will find it challenging to achieve the same level of returns this year.

“While growth was impressive in 2015, fund managers will need to be vigilant and ensure that the investment case for individual shares continues to stack up.”