Even after this month’s stockmarket wobbles, ASX small cap investors are still beating large cap investors — and Aussie property investors.

The ASX Small Ordinaries — a measure of small caps — is up 4.4 per cent in the last 12 months while the All Ordinaries is up 2 per cent. The two indicies had been as high as 14 per cent and 11 per cent in August — before a pummelling this month (see graph below).

Meanwhile house prices in Sydney, Melbourne, Brisbane, Adelaide and Perth are down 3.2 per cent in the year to September 30, according to Corelogic data.

And AMP capital chief economist Shane Oliver says property has a lot further to fall.

Mr Oliver believes Sydney and Melbourne property prices could fall 20 per cent — they’re now down 6 and 3 per cent respectively.

The big question for investors is whether there’s still time to nab a small cap bargain before Christmas.

Or is it time to pack up and go on holiday?

The ASX Small Ords (green) has outstripped the All Ords (blue) and ASX200 (red) this year
The ASX Small Ords (green) has outstripped the All Ords (blue) and ASX200 (red) this year

Bed of thorny roses

This time last year small caps were booming, driven by commodities, blockchain and fintech.

Fund managers were picking tech bubbles and seeing a rush of IPOs and capital raisings.

Now investors are getting deal fatigue says RM Corporate Finance’s Nathan Barbarich.

“I think what will happen now is the same as what happens every year at this time — we’ve got deal fatigue and everyone is getting ready for the end of the year,” Mr Barbarich told Stockhead.

“It would have to be the second coming of Christ to get people a excited about the market before February.”

Dean Fergie, director of fund manager Cyan Asset Management, says small cap markets had a strong run-up and recovery from February’s market drop before going sideways from June and falling again this month.

A stock picker’s market

It’s a stock pickers market now, says Lee IaFraté, chair of investor Armytage Capital.

“Where the market is going to go between now and Christmas, in small cap space, it needs to be seriously hard-nosed, old-fashioned detailed research and it’s going to get down to stock picking,” he says.

“We are now in a very clear stock-pickers market in small caps space.

“The days of the thematics saving you is over.”

He points to the China-dairy theme and the “edgy fintech lending” theme as examples of where a falling tide is stranding all boats, good and bad.

“After the market correction of last week the smalls really didn’t get hammered. The [thematic] storytellers have been whacked, [for example] the China milk powder storytellers,” he said.

“Excuse the pun, but they have been spilled.”

He pointed to Keytone Dairy (ASX:KTD), Bubs (ASX:BUB), A2 Milk (ASX:A2M), Synlait (ASX:SM1) and Bellamy’s (ASX:BAL) as having been “torched”, as investors realise that China isn’t going to make it easy to get new licences to sell milk powder there.

“You saw yesterday the possibility of an inquiry into these payday lenders… that edgy finance stuff, once again that’s another thematic,” he said, after the likes of AfterPay (ASX:AFT), Money3 (ASX:MNY) and Zip (ASX:Z1P) crashed following news of a Senate enquiry into payday lenders.

Mr IaFraté says there will be “serious bargains” available for people who do their homework: he points to Capilano Honey which he was building a position in earlier this year.

Now he says Armytage is the fourth largest shareholder in the company and he expects a takeover deal to be resolved in months.