NEW YORK (CNNMoney.com) - After beating the big boys for five years in a row, the small stock miracle may be ending -- for now.

That's not to say small cap stocks won't be attractive. It's just that picking winning stocks and winning sectors in the small-cap universe has grown notably more difficult after their stellar run.

As measured by the Russell 2000, small stocks are up 5.9 percent this year, versus a gain of 4.4 percent for the S&P 500. That's not bad, but last year the Russell 2000 gained 17 percent, almost twice what the S&P gained.

And over the five years between 2000 and 2004, the Russell 2000 gained 44 percent versus a decline of 8 percent for the S&P 500.

Why is that? In general, small caps -- companies with a market cap from $300 million to $1.5 billion range -- can respond faster to the demands of a worldwide economy, due to their size.

In a recovery, which the stock market has been in since bottoming in October 2002, small caps tend to rally earlier than bigger caps. Also, because the stocks are more thinly traded, they tend to be more volatile.

"The group has benefited from lower interest rates over the last few years," said Laura Lutton, a mutual fund analyst at investment research firm Morningstar. "Also, many small caps weathered the big corporate layoff cycle in the early part of the decade better than the larger caps, because their head counts weren't as inflated in the first place."

She said small-cap managers have expressed concerns about an end to the small-cap rally for at least a year now. That didn't prove true in the first half of 2005, with the Russell 2000 hitting an all-time high last August.

But the rally seemed to tap out in the third quarter of this year and could be on hold for next year, some analysts say.

"We believe that securities we are buying are undervalued relative to the market, but in general, the small cap market is overvalued right now because of the considerable run up," said Tina Larsson, co-manager of the Kinetics Small Cap Opportunities Fund (Research) and the Kinetics Paradigm Fund (Research).

Larsson thinks the broader market is overvalued as well.

She's not looking for declines in small caps next year, but doesn't expect further gains either.

"We're looking for a sideways market in 2006 and 2007," she added. "The earnings need to catch up with the huge run the stocks have had."

Rising oil and gas prices this year have raised inflationary fears, a negative for the overall market. But the run up has also given a tremendous boost to energy stocks and the funds that own them.

Morningstar's Lutton noted that several well-known managers of broader funds have begun to move money out of smaller stocks and into mid caps this year, partly since many energy stocks fall in the mid cap range. Mid cap funds have thus been top performers due to energy, and small caps have benefited as well.

Higher energy prices and strong energy earnings are two reasons that the Berwyn Fund (Research), a small-cap value fund, has posted gains of more than 15 percent so far this year.

"A year ago, we thought 2005 was going to be a difficult year for us, but we're pleased and surprised that it's been so good," said Robert Killen, co-manager of the Berwyn Fund. Killen attributed that to strength in the energy sector.

Berwyn had roughly 19 percent of its assets in energy at the end of the third quarter. It's largest holding is Southwestern Energy (Research), an oil exploration and production company that has seen its share price nearly triple this year.

But since oil prices have peaked, at least for now, after trading above $70 a barrel in August, the decline has weighed on energy stocks as well.

Longer term, Killen remains bullish on energy stocks, but he expects more of a pullback in the sector in the short run, noting his fund has cut its exposure significantly.

"We're eliminating a number of positions that have done well the last few years because we're looking for areas that are undervalued," said Berwyn co-manager Lee Grout.

A similar thing happened with small cap bank stocks, said Morningstar's Lutton. The group did well for several years but then some price-sensitive managers started seeking new bargains.

"After five years, where small cap value has gone from a dirty word to a glamour sector, it's more difficult to find good values," said Killen.

Although they look on a stock-by-stock basis and not by sector, Grout says generally Berwyn is interested in areas that have been overlooked of lately, notably healthcare, telecom equipment and certain tech names.

The concerns for small caps aren't so different from what ails the broader market, namely rising interest rates and concerns about slower earnings and economic growth, said Kinetics' Larsson.

But if the three-year bull market stalls early next year, as some analysts expect, among those hit hardest could be small caps.

"I've heard a lot of people talking about large cap for next year," said Lutton, "that once it picks up, the group is really poised to grow its earnings dramatically. I don't know that small caps will benefit from that."

Still, for longer-term investors a slowdown in smaller stocks next year isn't a big worry.

"We're not chasing returns," said Larsson. "We try to eliminate risk and we believe that by doing so, the return will follow. If we know something is very undervalued, it doesn't matter how long it takes."

The small cap fund she co-manages is up 12 percent year to date.

Her fund has done well with utilities and some reinsurance firms that are poised to recover once the cloud of hurricanes Katrina and Rita lifts. They also invest in 12 or so publicly traded stocks exchanges, including Hong Kong, Singapore and London.

Kinetics also has a stake in Archipelago Holdings, which is expected to be taken over by the New York Stock Exchange, and Kinetics expects Archipelago to benefit from that in the long term.

Shorter term, the going is to be more choppy, said Berwyn's Killen. "In general, this is a time to be more cautious."