SPDRs S&P 500 (NYSEArca: SPY), currently up 15.6% year-to-date, with average daily trading volume of 189 million, corresponds to the price and yield performance of the S&P 500 Index. The fund has a net expense ratio of 0.09%.

Sector allocations: information technology, 18.6%, financials, 15.2%, health care, 13.1%, energy, 11.7%, consumer staples, 11.6%, industrials, 10.2%, consumer discretionary, 9.2%, utilities, 3.7%, materials, 3.5%, telecom services, 3.2%

PowerShares QQQ (NasdaqGM: QQQQ), currently up 38.4% year-to-date, with daily average trading volume of 133 million, seeks to track the Nasdaq-100 Index. The fund consists of all stocks in the Index, which includes 100 of the largest domestic and international nonfinancial companies. QQQQ has an expense ratio of 0.2%.

Sector allocations: consumer discretionary 13.3%, consumer staples 1.1%, health care 16.3%, industrials 4.9%, info. tech. 63.1%, materials 0.6%, telecom services 0.8%

Financial Select Sector SPDR (NYSEArca: XLF), currently up 16.1% year-to-date, with average daily trading volume of 112 mil, tries to reflect the returns and characteristics of the Financial Select Sector Index.  The fund has an expense ratio of 0.21%. Top holdings include JP Morgan (NYSE: JPM) and Bank of America (NYSE: BAC).

iShares Russell 2000 Index (NYSEArca: IWM), currently up 19.8% year-to-date, with average daily trading volume of 72 million, tries to mimic results that correspond to the price and yield performance, before fees and expenses, of small capitalization sector of the U.S. equity market, Russell 2000 Index, which represents around 2,000 smallest companies in the Russell 3000 Index. The fund has an expense ratio of 0.24%.

Sector allocations: financial services, 20.5%, consumer discretionary, 16.8%, technology, 15.8%, health care, 15%, materials & processing, 8.2%, producer durables, 8.1%, utilities, 5%, other energy, 3.9%, autos & transportation, 3.5%, consumer staples, 2.6%

UltraShort QQQ ProShares (NYSEArca: QID), currently down 9.2% in the last month, with daily average trading volume of 36 million, seeks daily investment results that tracks twice the inverse of the daily performance of the NASDAQ-100 Index. Note the ETF tries to reflect a -200% return of the Index for a single day. The fund has an expense ratio of 0.95%.

Max Chen contributed to this article.

Small-cap stocks are those with a market capitalization of less than $1 billion. These companies rely on fewer products, have less available cash and are generally more risky than larger companies. But on the plus side, small-cap companies tend to be more nimble and quick to react as market conditions shift.

Matt Krantz of USA Today says that history this time is proving to be correct: small-cap stocks that are leading the recovery effort.  In fact, small caps are up nearly 70% from their March lows, whereas the larger stocks have gained nearly 45%.  This can further be evidenced through the performance of the following small-cap ETFs:

• Vanguard Small-Cap Value ETF (VBR): up 21.1% year-to-date

• PowerShares Dynamic Small Cap (PJM): up 8.5% year-to-date

• iShares Russell 2000 (IWM): up 19.5% year-to-date

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

Kevin Grewal contributed to this article.

ETF trading volume jumped from $142 billion in 2004 to $3 trillion in 2008, and settling around $1.4 trillion in June 2009, write Yan Zilbering and Donald Bennyhoff for IndexUniverse. Since 2008, nost of the ETF trading volume has been centered around a narrow selection of ETFs from the 850 or so available as of June 2009.

The top 20 most heavily traded ETFs by dollar volume amount to around 80% of total ETF trades. At the forefront are the most established ETFs with the most assets that are popular among investors of all types. The included ETFs account for about 50% of all ETF trading volume and they track the most common, broad-based domestic indexes:

• SPDRs S&P 500 (SPY): avg. daily turnover since Jan. 2008 is 43%
• PowerShares QQQ (QQQQ): avg. daily turnover since Jan. 2008 is 43%
• iShares Russell 2000 Index (IWM): avg. daily turnover since Jan. 2008 is 54%
• DIAMONDS Trust, Series 1 (DIA): avg. daily turnover since Jan. 2008 is 28%

There are also a group of nine narrowly focused sector and sub-sector ETFs, which represent around 16% of ETF trades, used to implement various strategies through the easy access of specific areas of the market.

• Financial Select Sector SPDR (XLF): avg. daily turnover since Jan. 2008 is 45%
• Energy Select Sector SPDR (XLE): avg. daily turnover since Jan. 2008 is 40%
• Oil Services HOLDRs (OIH): avg. daily turnover since Jan. 2008 is 54%
• SPDR Gold Shares (GLD): avg. daily turnover since Jan. 2008 is 6%
• iShares Dow Jones US Real Estate (IYR): avg. daily turnover since Jan. 2008 is 58%
• iShares MSCI EAFE Index (EFA): avg. daily turnover since Jan. 2008 is 4%
• iShares MSCI Emerging Markets Index (EEM): avg. daily turnover since Jan. 2008 is 12%
• iShares FTSE/Xinhua China 25 Index (FXI): avg. daily turnover since Jan. 2008 is 20%
• iShares MSCI Brazil Index (EWZ): avg. daily turnover since Jan. 2008 is 18%

The last set includes seven leveraged ETFs, which produce the multiple or inverse returns of the broad market or sector. This group is usually used for capitalizing on the short-term movements in the markets.

• Ultra S&P500 ProShares (SSO): avg. daily turnover since Jan. 2008 is 61%
• UltraShort S&P500 ProShares (SDS): avg. daily turnover since Jan. 2008 is 109%
• Ultra QQQ ProShares (QLD): avg. daily turnover since Jan. 2008 is 90%
• UltraShort QQQ ProShares (QID): avg. daily turnover since Jan. 2008 is 178%
• UltraShort Financials ProShares (SKF): avg. daily turnover since Jan. 2008 is 242%
• Direxion Daily Financial Bull 3X Shares (FAS): avg. daily turnover since Jan. 2008 is 128%
• Direxion Daily Financial Bear 3X Shares (FAZ): avg. daily turnover since Jan. 2008 is 241%

By looking at the data, it is noticeable that the more heavily traded ETFs traded at a higher turnover rate. ETFs tracking volatile sectors have been traded at even higher levels.

Max Chen contributed to this article.

Ron Rowland for JutiaGroup lists these six ETFs that you must get to know. Rowland’s caveat is that he isn’t saying buy them right now. But know them. They’re among the largest and most liquid ones on the market today:

• SPDR S&P 500 (SPY): up 12.6% year-to-date; gives instant access to the S&P 500, an index of the 500 largest domestic stocks covering all industry sectors. This ETF was the first ETF, introduced in 1993, and is referred to as the “grandfather” of funds.

• PowerShares QQQ (QQQQ): up 34.8% year-to-date; viewed as a large-cap technology benchamark, this ETF tracks the Nasdaq 100 is a sub-set of the Composite, consisting of the 100 largest non-financial stocks in the index. Exposure to real estate, banks and insurance companies is not available in this fund.

• Diamonds Trust Series 1 (DIA): up 7.6% year-to-date; a 30-stock index that tracks Dow Jones Industrial Average, an index of the largest U.S. blue chip stocks. DIA excludes some key sectors like transportation and utilities. Despite criticisms of the Dow (it’s too narrow, it excludes certain key sectors), it does give access to mega-caps.

• iShares Russell 2000 Index (IWM): up 17% year-to-date; the Russell 2000 is an index of the 2,000 smallest companies ranked by U.S. market value. Small-caps often lead the way in a recovery, too. IWM can be a good way to hold hundreds of these small companies in one fund.

• iShares MSCI EAFE Index (EFA): up 15.2% year-to-date; An international fund based upon the Europe, Australasia and Far East Index published by Morgan Stanley Capital International. It includes Western Europe, Australia, Japan — the countries with modern stock markets and banking systems. The countries in the index can change as new ones are promoted to developed status.

• iShares MSCI Emerging Markets Index (EEM): up 45.7% year-to-date; markets like Brazil, Russia, India and China are represnted in this fund, along with markets that have recently made ties with the rest of the world. It can be challenging to buy stocks in emerging markets. This ETF, like so many others, simplifies the whole process.

If these or any other ETFs are appealing to you and right for your portfolio, watch the trend lines to spot any opportunities to get in. Be sure to have a sell point before you buy, too.

For more stories about ETFs, visit our ETF 101 category.

For full disclosure, Tom Lydon’s clients own shares of EEM, QQQQ and SPY.

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.

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

These stocks, which carry a market capitalization of anywhere between $300 million and $2 billion, are among the most volatile and illiquid investments out there, but they are also the most heavily tied to banks and the overall economy. After the market meltdown of the previous year, it appears that investors are starting to diversify and educate themselves, gaining exposure to a broad range of small-caps and not relying on just one small-cap sector, states Geoffrey Rogow of The Wall Street Journal.

This has lead to an overall stellar performance by the small-caps. The Russell 2000 index of small-cap stocks is up about 17.6% and the Standard & Poor’s Small Cap 600 has jumped about 10.6% over the past month.  This could be a good indicator that our economy is in the early stages of a recovery.  After all, history suggests that small-caps lead the gains in the inital movement of stocks at the beginning of nearly every economic recovery. But since little about this market has been “typical,” it’s best to wait for the trend lines to show themselves first.

This surge and attractivness in the small-cap industry has even encouraged some ETF providers, such as Vanguard, to launch new products.  If you want to grab exposure to the market through ETFs take a look at the following:

• Vanguard Small Cap Value ETF (VBR): up 20.8% over the last month; down 6.3% year to date

• PowerShares Dynamic Small Cap (PJM): up 16.3% over the last month; down 8.7% year to date.

• iShares Russell 2000 (IWM): up 17.6% over the last month; down 4.5% year to date

Kevin Grewal contributed to this article.

Investors have a cornucopia of ETFs to choose from with 843 exchange-traded products currently available, writes Ron Rowland for Seeking Alpha. There are some oddballs that have trading sessions with zero volume and high bid/ask spreads. But there is also a select group known as the “ETF Billion Dollar Club” that has risen above the crowd in providing more than $1 billion per day in trades.

The average daily value traded (ADVT) is a good indicator for liquidity. It is the volume multiplied by price, and is sometimes referred to as $ Volume. Higher liquidity means there will most likely be someone out there willing to take the other side of a trade.

There are 17 members in this exclusive club as of February, 2009:

1. SPDR S&P 500 (SPY): ADVT of $30,767,683,584
2. PowerShares QQQ (QQQQ): $5,251,502,080
3. ProShares UltraShort Financials (SKF): $4,627,046,400
4. ProShares UltraShort S&P500 (SDS): $4,580,779,008
5. iShares Russell 2000 (IWM): $3,093,236,480
6. DIAMONDS Trust (DIA): $2,625,997,824
7. SPDR Gold Trust (GLD): $2,470,299,648
8. SPDR Select Sector Financial (XLF): $2,082,540,544
9. ProShares Ultra S&P 500 (SSO): $1,905,811,200
10. SPDR Select Sector Energy (XLE): $1,795,240,832
11. iShares MSCI Emerging Markets (EEM): $1,746,615,296
12. ProShares UltraShort Real Estate (SRS): $1,577,850,496
13. ProShares UltraShort QQQ (QID): $1,458,607,744
14. iShares Dow Jones U.S. Real Estate (IYR): $1,244,349,184
15. iShares MSCI EAFE (EFA): $1,222,589,568
16. Direxion Financial Bear 3x Shares (FAZ): $1,221,666,944
17. United States Oil Fund (USO): $1,034,414,528

Mark Hulbert for MarketWatch reports that the January effect is the seasonal tendency for stocks of small companies to outperform the large-caps around the turn of the year. Research indicates that this pattern has been true for more than two decades and further digging into the backtesting proves that this pattern has been solid in many decades prior to that, as well. The January effect may be the strongest historical pattern that researchers have noted in the stock market.

But there’s some caution this time around. The reason is because the January effect actually exists because of the appetite of investment managers’ for riskier stocks at the start of the new year. Haven’t we all seen a large enough dose of risk over the past six months? If the bear market continues with its voracity and another downturn occurs, managers will steer clear of risky small-caps.

Whether it’s real or not, just stick to the strategy of watching for the 50 day-moving average before jumping in and wait to see a trend really develop instead of relying on past history. Some small-cap ETFs include:

• iShares Russell 2000 ETF (IWM): down 38.8% year-to-date

• Vanguard Small Cap (VB): down 40.7% year-to-date

No asset class has been spared in this bear market, but over the long-term, small-cap funds have performed slightly better than their mid- and large-cap brethren. One typically expects small-caps to get pummeled, since they have less diversified revenue resources, are not as globally diversified and have a harder time generating capital, explains Kyle Waller for Seeking Alpha.

Performance has not been consistent, however, as three different ETFs from the same asset class vary widely:

• iShares S&P Small Cap 600 Index (IJR): down 33.7% year-to-date; 19.1% financials; 16.9% industrial materials

• Vanguard Small Cap (VB): down 38.4% year-to-date; 17.3% financials; 16.2% industrial materials

• iShares Russell 2000 Index (IWM): down 35.7% year-to-date; 21.6% financials; 14.5% industrial materials

All three funds are constructed and weighted differently; companies in IJR have to be trading at least 12 months, with four straight profitable quarters and be tested for liquidity before inclusion. VB and IWM have a more passive index methodology approach.

While small-caps haven’t been spared in the turmoil, we expect them to bounce back from a downturn better than most because their small size makes them more nimble and resilient in a market recovery.