An investor can put money into the emerging markets and related exchange traded funds (ETFs) through many different ways. But did you know that you can also target the small-caps of emerging markets, too?

During last year’s market declines, large-cap emerging market indexes closely matched the small-cap emerging market indexes. This year, emerging market small-cap ETFs are performing in excess of large-caps, writes Kyle Waller for IndexUniverse. What it means:

• Positive Signal? The bulls say this is a sign of a strong bottom-up progress in developing countries, coupled with the ability of smaller companies to adapt as conditions change.

• Why An ETF? Using an ETF as your means for getting into small-caps in emerging markets can be beneficial, as many small companies in these markets can be difficult to research. Instead, the provider can do the legwork for you.

• More Risk? Small-cap emerging market companies are riskier than traditional emerging market investments, which usually translates into higher price volatility and liquidity issues. It’s also important to be mindful of any political instability and currency exchange rates. Have a strategy to help protect yourself.

• On the Plus Side…The rewards for investing would be the potential for above-average returns. These ETFs also can help lower a portfolio’s correlation to stocks focused on developed countries.

SPDR S&P Emerging Markets Small Cap (EWX) is more concentrated in Taiwan and China. WisdomTree Emerging Mkts Small Cap Div (DGS) is concentrated in Taiwan but it also has large holdings in South Africa, Korea and Israel. Vanguard Emerging Markets Stock ETF (VWO) has more exposure in China and Brazil.

• SPDR S&P Emerging Markets Small Cap (EWX): up 66.5% year-to-date; consumer goods is 18.7%, materials 18.2%, energy 2.7%, utilities 3.6%, health care 2.8%, consumer services 8.0%, business services 6.1%, financial 21.1%, software 1.8%, hardware 10.6%, media 2.3%, telecom 4.1%

• WisdomTree Emerging Mkts Small Cap Div (DGS): up 55.9% year-to-date; consumer goods is 17.6%, materials 18.1%, energy 3.0%, utilities 5.9%, health care 0.9%, consumer services 8.6%, business services 10.2%, financial 16.8%, software 1.2% hardware 13.0% media 1.2%, telecom 3.5%

• Vanguard Emerging Markets Stock ETF (VWO): up 51.6% year-to-date; consumer goods is 9.1%, materials 17.9%, energy 13.3%, utilities 5.1%, health care 2.9%, consumer services 3.1%, business services 1.7%, financial 22.4%, software 1.2%, hardware 9.0%, media 1.0%, telecom 13.3%

• iShares MSCI Emerging Markets Index (EEM): up 46% year-to-date; software is 1.7%, materials 19.1%, energy 12.4%, utilities 6.0%, hardware 12.4%, media 1.1%, telecom 12.1%, health care 2.0%, consumer services 2.6%, business services 1.9%, financial 22.2%, consumer goods 3.5%

For more information on emerging markets, visit our emerging markets category.

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

Max Chen contributed to this article.

Tags: Asset Class ETFs, DGS, EEM, Emerging Markets, EWX, Large-Cap, Small-Cap, VWO