As stocks and exchange traded funds (ETFs) have started to bounce back and make a rally, some portfolios have performed better than others.  So how do you know where to invest to be included as one of the better performers?

One caveat to consider is market-cap size and style.  It appears that this rally has been much more friendly to small-cap stocks than to large-cap ones, states Murray Coleman of Index Universe.

Additionally, on the growth side, small caps have outperformed large caps.  When it comes to style, the same remains true, small-caps have beaten their larger counterparts.  From a blended perspective, this is illustrated in comparing the iShares Russell 2000 Index (IWM), up 7.8% year-to-date, to its larger counterpart, the iShares Russell 1000 Index (IWB), up 6.4% year-to-date.

When comparing counterparts in the same size category, the clear winner in the current market rally is value and not growth.  One possible reason for this discrepancy may be because of the asset weights of the different indexes.  The value index is heavily focused on financials, which have performed substantially well during the rally, posting greater than 100% returns.  On the flip side, the growth index which is focused on technology, which has enjoyed a rally of approximately 45% during the same time period.

Regardless of which size or style you prefer, watch for the trends to emerge.  For this reason, the best approach is to stay diversified, have a strategy and know exactly what your portfolio, or better yet your ETF, holds.

For more stories on small-cap ETFs, visit our small-cap category.

For full disclosure, some of Tom Lydon’s clients own shares of IWM.

Kevin Grewal contributed to this article.

Tags: Asset Class ETFs, Indexing, IWB, IWM, Small-Cap