Although there are various ways to diversify, Roger Nusbaum, a contributor at TheStreet, follows a Mohammed El-Erian type portfolio with allocations in equity, bonds and real assets. El-Erian is the CEO and co-CIO of PIMCO.

Nusbaum took a look at ETF choices that fit in with El-Erian’s concept:

In the equity portion, he suggests allocating 10% to the PowerShares S&P 500 Buy Write Portfolio (PBP) and 5% to the iShares S&P 600 Small Cap ETF (IJR) which enables investors to benefit from fact that small-cap stocks generally lead the way in the early stages of a stock market cycle.

Additionally, he suggests allocating 10% of a portfolio to the WisdomTree International Large Cap Dividend ETF (DOL) and 5% to the SPDR S&P International Small Cap Index Fund (GWX). In regard to gaining access to emerging markets, Nusbaum suggests looking at the PowerShares BLDRS Emerging Market 50 Index Fund (ADRE).

Next, he suggests adding fixed-income ETFs to a portfolio. In this portion, he states one should look at the iShares Barclays Agency Fund (AGZ) or iShares S&P/Citigroup 1-3 Year International Treas (SHY). PIMCO also offers a PIMCO 1-3 Year U.S. Treasury Index Fund (TUZ).

To wrap up fixed income, he suggests the use of iShares S&P Citigroup International Treasury (IGOV).

In regard to real assets, Nusbaum suggests utilizing the WisdomTree International Real Estate ETF (DRW) the SPDR Gold Trust (GLD) and the PowerShares DB Agriculture Fund (DBA). Additionally, he suggests gaining exposure to infrastructure through the iShares S&P Global Infrastructure Fund (IGF).

Lastly, he states that one should allocate 8% to special opportunities like the PowerShares Water Portfolio (PHO).

In addition to this, we suggest that one utilize a strategy when investing, such as monitoring market trends using the 200-day moving average.  More on the trend following strategy can be found in our new book.

For more stories on portfolio construction and the use of ETFs, visit our ETF education category.

Kevin Grewal contributed to this article.

Russell Investments research indicates that small-cap stocks tend to do well after a recession, indicating their possible outperformance once the market has hit its bottom. This theory has been reinforced since the market lows reached on March 9. Since then, Ian Wyatt for SmallCapInvestor says, the majority of stocks gaining on any particular day have been of the small-cap variety.

Why? Chalk it up to nimbleness. Small-caps can shift and change strategies as market conditions change much more easily than larger companies can.

Meanwhile, the iShares Russell 2000 (IWM) is up 45.9% off the March 9 market low. Traders are watching these indicators, although the jury is still out on whether a turnaround within the market has actually or will occur. Just remember, be ready with an entry and an exit strategy and watch the trend lines, because time will only tell.

Don’t forget about international small-caps, either. Many European small-caps are faring well in a down economy.

• SPDR S&P International Small Cap (GWX): up 14.1% year-to-date

• iShares S&P Small Cap 600 Index Fund (IJR): down 0.1% year-to-date

• Vanguard Small Cap (VB): up 8.1% year-to-date

• WisdomTree Small Cap Dividend Fund (DES): down 7.6% year-to-date

Europe’s SMEs, firms with less than 250 employees, represent a workforce of 88 million people and make up two-thirds of private-sector employment, according to the Economist.

SMEs have less assets, smaller retained earnings, fewer customers than large corporations, and they can’t spread risk by diversifying product lines or expanding to different locations. These small businesses are also experiencing dwindling demand and shortage of bank credit, but governments are starting to order banks to lend to them, provide credit guarantees, suspend some taxes and force public bodies to pay up faster.

In a recent survey, a little more than half of 804 French SMEs expect revenues to remain the same or increase in 2009.

German domestic consumption is keeping steady and it is helping to support home businesses while exporting firms are more troubled.

While in Britain, corporate liquidations increased to 4,941, up 56% year-over-year, in the first quarter and most of which were in SMEs. But a recent survey found 60% of businesses performing equivalent to or better than last year.

Small-caps in other countries aren’t that much different than they are in the United States, in that their small size makes them especially nimble and better able to adapt to changing conditions.

• SPDR S&P International Small Cap (GWX): up 10.4% year-to-date; Western Europe is 34.1%

• WisdomTree International SmallCap Div (DLS): up 7.9% year-to-date; Western Europe is 42.2%

Max Chen contributed to this article.

Gary Gordon for ETF Expert notes that the S&P 500 turned positive for 2009, gaining nearly 35% off of the March lows. Meanwhile, emerging markets are surging just a bit ahead,  up 47%, with no more than a two-day setback here and there.

The foreign areas are beginning to take off, so here are a few observations:

• Foreign stocks are cheaper than U.S. stocks. Many of the small-cap stocks or ETFs are trading at book value
• Foreign stocks are paying higher dividends. A dividend is always a bit of reward for wading back into the market.

By all measures of value, foreign stocks are in favor more so than domestic. Globally, the growth prospects for Brazil, China and the Asia-Pacific region appear to be optimistic.

Each investor is different – watch the trends and think about what’s right for you – there are many areas starting to move above their 200-day-moving averages or getting very close.

• iShares MSCI Emerging Markets (EEM): up 22.4% year-to-date

• SPDR S&P Emerging Market Small Cap Fund (EWX): up 31.8% year-to-date

Granted, we have seen a nice rally over in the U.S. markets over the past few weeks, but the underlying cause of the collapse has still not been solved.  Too many U.S. companies borrowed beyond their means and are still up to their eyeballs in debt.  The opposite is true in Asia, there are people sitting on piles of cash, states Brett Arends of The Wall Street Journal.

Asian companies are also attractive because of how cheap they are.  Many are trading at 10 times likely earnings and some are selling at a few times earnings.  To top it all off, the fundamentals of some Asian companies may still be sound, in that they carry low levels of debt. Could this provide opportunities down the line? Make no mistake: this recession has touched anyone and everyone.

If you want to grab exposure to emerging Asia and Japan, take a look at the following ETFs:

• SPDR S&P International Small Cap (GWX): down 8.6% year-to-date; 55.5% of assets are allocated to Asia; note that it’s above the 50-day moving average, but still below its 200-day

• iShares MSCI Japan Small Cap Index (SCJ): down 17.3% year-to-date; 92.7% of assets are in Japan

Kevin Grewal contributed to this article.

This index enables Vanguard to offer its clients access to the most investable areas of what potentially could be a highly illiquid overseas marketplace.  It also enables the provider to remain competitive and try to grab attention and market share from small-cap international ETFs that are already established, such as the International Small Cap Dividend Fund (DLS), iShares MSCI EAFE Small-Cap Index Fund (SCZ), the SPDR S&P International Small-Cap Fund (GWX), and the FTSE Developed Ex-US Small Cap ETF (IFSM), states Murray Coleman of Index Universe.

Vanguard has a good advantage in the industry, in that, last month, it introduced its long-closed International Explorer Fund (VINEX), which had an expense ratio of 0.35%, making it the cheapest mutual fund in its category and making an actively managed fund the least expensive option for retail investors when matched against corresponding ETFs.

As for the Vanguard FTSE All-World ex-US Small-Cap Index Funds, investor shares will require at least $3,000 with an expense ratio of 0.60% and institutional shares will require $5 million and charge 0.35% in expenses.  As for the ETF version, the expense ratio will be 0.38%, making it competitive with BGI’s version, but more costly than IFSM.

This new index will provide a good alternative and open up options for traditional index mutual fund investors.