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Tony Featherstone is a Morningstar contributor and a former managing editor of BRW and Shares magazine.

Spare a thought for small-cap Australian equity funds.

Global risk aversion, the sell-off in resource stocks and heavy falls in micro-cap stocks provide a terrible backdrop for small-cap funds. Yet, this managed funds segment continues to deliver better relative performance than most fund groups.

Investment research house Morningstar's latest managed funds performance summary shows that on an absolute basis, small-cap equity funds fell 10.92 per cent on average in the second quarter of 2012.

That beat a 15.3 per cent fall in the S&P/ASX Small Ordinaries Index, but was still a painful loss for investors.

"Small-cap Australian share funds fell victim to the 'risk-off' trade that gripped markets for much of the quarter," Morningstar said.

Most fund managers struggled in the second quarter, with those managing local and global property funds the exception as the average Australian listed property fund returned 8.36 per cent in the quarter.

Morningstar said: "The majority of large-cap Australian and international share funds lagged their relevant market benchmarks, and many bond fund managers got caught with relatively short-duration positions while yields fell. The major exception was small-cap funds."

It found 43 of 46 small-cap managed funds outperformed their benchmark Small Ordinaries Index in the second quarter - an encouraging relative result given the high volatility in the sector.

Large falls in the small resources component of the Small Ords may have helped the small-cap funds category, given many funds have low exposure to speculative exploration companies, or gain leverage to the resources sector through more established, profitable mining services companies.

In contrast, only 38 of 100 large-cap Australian share funds outperformed the S&P/ASX 300 Accumulation Index over the second quarter.