Andrew Leckey of the Tribune Media Services states that from 1941 to 1947, when inflation averaged 7.5%, the top-performing stock segments were U.S. small-cap value stocks, up 28%; micro-cap stocks, up 22%; and large value stocks, up 17%, and it is not unreasonable to expect the same.

For this reason he suggests looking at the Vanguard Small Cap Value (NYSEArca: VBR), the iShares Russell Microcap Index (NYSEArca: IWC) and the Vanguard Value ETF (NYSEArca: VTV).

Another class to consider when dealing with inflation is the Treasury Inflation Protected Securities (TIPS), which pay a steady yield and adjust as the U.S. Consumer Price Index moves.  A good way to access TIPS is through the iShares Lehman TIPs Bond (NYSEArca: TIP), PIMCO Broad U.S. TIPS (NYSEArca: TIPZ) or SPDR Barclays Capital TIPS (NYSEArca: IPE)

Gold and silver are also popular and useful inflation hedges.

With the proper strategy and utilization of some of the previously mentioned ETFs, one can capitalize on an opportunity.

For more stories on bond ETFs, visit our bond ETF category.

Kevin Grewal contributed to this article.

Despite the some of the criticisms lobbed at small caps, such as that they’re high-risk or lack quality, they have many good points. By definition, a small cap company has a market capitalization of $250 million to $2 billion. Those with a market cap below $250 million are referred to as micro-caps.

There are two benefits to using ETFs in order to get your small-cap exposure:

1. Although small cap companies can be tough to research, ETFs can do the legwork for you;

2. They invest in a number of companies at one time, so they spread the risk around

Other benefits of small cap stocks:

• Lots of growth potential. Many large-cap companies were at one time small-cap companies. A modest investment can grow into a larger sum one day, explains Investopedia. Of course, don’t bank on this – just recognize the potential.
• Mutual funds stay away. Most small-caps don’t have the market cap to support the size of investment that a mutual fund makes. Institutions can’t get into small- cap companies because they would buy up more than 20% of the company. This helps keep share prices even.
• Under-recognized. The small- and micro-cap share gets little or no attention from Wall Street. Therefore, some feel that small-cap stocks are improperly priced, offering an opportunity to profit from the inefficiencies caused by the lack of coverage devoted to a particular area of the market.

Small caps also tend to perform well after a recession, as they are quick to adapt to shifting economic conditions. Small caps tend to trade at low multiples to book value and other fundamental measures, so they are desirable when investors are able to handle a bit of risk.

• First Trust Dow Jones Select Microcap (FDM): up 3.7% year-to-date

• iShares Russell MicrocapIndex (IWC): up 10.1% year-to-date

• PowerShares Zacks Microcap (PZI): down 1.8% year-to-date

For more stories about small-caps, visit our small-cap category.

The next best crop of companies set to grow over the next decade will not be the biggest of the big companies. The large-caps are already giant, and if these solid businesses as we know them grew tenfold in value, they would become trillion dollar companies. While this is not impossible, it is highly unlikely.

Rex Moore for The Motley fool on MSNBC says that the greatest chance for the best gains are the small- and micro-cap companies. These half-pints are capitalized at less than $200 million, which means that there’s plenty of room for them to grow. Small-caps also tend to do better after a recession, since they’re more nimble and able to adapt to shifting market conditions with ease.

Remember, though, that with greater potential reward comes heightened risk. A micro-cap ETF is a good way to spread out the risk, and invest in a handful of these companies, rather than just one. For those investors who are ready to bear the land of small- and micro-0caps, be sure to go into the market with a strategy. By using a strategy such as the 200 day-moving average, you can protect yourself.

• iShares Russell MicroCap Index (IWC): up 6.7% year-to-date

• First Trust Dow Jones Select MicroCap (FDM): up 1.8% year-to-date

There are 10 broad-market “value” ETFs and 10 broad-market “growth” ETFs with Barclay’s iShares, Powershares, and Vanguard being the more prominent fund families, writes Gary Gordon for ETF Expert.

As of Dec. 26, five of 10 “value” ETFs had shown a healthy short-term moving average; whereas, none of the growth ETFs had risen above their 50-day trends. The five noteworthy “value” ETFs were:

• iShares Russell 2000 Value (IWN): down 28.7% in 2008
• iShares MidCap 400 Value (IJJ): down 35.2% in 2008
• iShares S&P Small Cap 600 Value (IJS): down 29.4% in 2008
• PowerShares Dynamic Large Cap Value (PWV): down 27.2% in 2008
• Powershares Dynmic MidCap Value (PWP): down 37.1% in 2008

But how quickly things change – at the end of last week, growth was leading the charge ahead of value, and it has also popped above its 50-day.

Growth is typically thought to lead the stock market out of a recession, but some investors seem to believe that companies won’t be able to grow for another year or two. Old tried and true behaviors show mainstream investors to stick with the old, sturdy companies that will keep on growing, even if it is by a slow and steady pace.

The growth vs. value debate is an old one, and the two sides of it don’t seem likely to budge from their positions any time soon. For his part, Robert Arnott, the founder and chairman and Research Affiliates as well as the “father of fundamental indexing,” had predicted that in a recovery, deep value should perform well.

Where do you stand on the issue? Are you in favor of growth or value when the market begins to rebound?

History has shown that in a bull market recovery, small companies outperform larger companies, so in essence, if smaller companies are starting to outperform larger companies then things are turning for the better, states Gary Gordon of ETF Expert.

The smallest companies in the ETF world can best be represented by iShares Russell Microcap Index Fund (IWC), which is down 41.6% year-to-date, whereas the largest companies can be represented by the iShares Russell 1000 (IWB), which is down 40.4% year-to-date. Over the last three months, they’re down 36.3% and 29.7% year-to-date.

IWC has come close to crossing over IWB, but with the failure of Lehman, the Freddie/Fannie takeover, and TARP legislation, credit markets became tighter, especially for small businesses.  Until the small company stocks break above large company stocks, it is difficult to say that we have made it half-way through the recession.

While watching these types of movements is interesting, the easiest way to see if we’re poised for a comeback is to watch those trendlines. While both of these funds are nearing their 50-day moving averages, they’re not quite there yet.

Investors who have been disciplined about their portfolios and placed a long-term asset allocation plan into action could find plenty of great buying opportunities soon, says Kenneth Smith in an interview with Index Universe.

When the markets rebound, investors with cash on the sidelines can employ the 50-day moving average strategy for getting back in incrementally. Using the 50-day will allow investors to take advantage of low valuations and capitalize on a recovery early.

Those areas that have been the most beat-up in this downturn could be positioned to perform the best.

By having a strategy for getting back into the market, there is lowered risk as well. When the 50-day has been crossed for some of these areas, such as small-caps and financials, put 25% of your portfolio value in. When the fund goes up another 5%, put in another 25%. Around this time the 200-day moving average should be in sight.

To see which ETFs are approaching their 50-day and 200-day moving averages, visit our ETF Analyzer. By clicking on “EMA 50″ and “EMA 200,” you can sort funds by percentage above or below the averages.

Recent selloffs in the markets have diminished iShares Russell Microcap Index Fund (IWC), leaving it more than 50% off its high of June 2007 , according to Microcap Speculator for Seeking Alpha. Who knows if it could get better or get worse?

But Microcap Speculator makes the case that the selloff has reached a turning point citing the following reasons:

• Initial market fears showed traders willing to get out at any cost or they were forced to sell due to margin calls. Most who considered selling have already done so. So new buyers have a lower cost basis and are more likely to weather the tumultous fluctuations of the current market.
• Since the index has gone far below its 50-week moving average, a sign of it being severely oversold, the index’s odds that there will be a sharp move upwards are very high.
• Lastly, November and January are historically strong months for microcaps. Taking into consideration recent volumes of selling, December, a traditionally negative microcap month, may be this years exceptioni.

IWC is down 43.8% year-to-date. As always we’ll wait for the trend to show up before considering an ETF, and this one is down 20.8% from its 50-day moving average, and 33.4% below its 200-day.

When micro-caps do take off, they do so with quite a bang, and it usually happens fast, reports Andrew Leckey for Tribune Media Services.

Small and micro-cap stocks and ETFs also help investors with asset allocation, and remember, many large firms turned out to be complete losers this year. Five years ago, small-caps were one of the best areas to be in. And though micro- or small-cap stocks can fall further, many are trading below actual book value, which is the value of the company that the shareholders would receive if the company were to liquidate.

Micro-caps can be tricky for investors. These companies are the smallest of the small, and are therefore challenging to research. But with micro-cap ETFs, the legwork on that end is done for you.

In a market recovery, these areas are poised to do the best, since they have the most room to grow and the companies in them are nimble. These include ETFs such as:

• First Trust Dow Jones Select MicroCap Fund (FDM), down 3.5% year-to-date
• PowerShares Zacks MicroCap Fund (PZI), down 12.6% year-to-date
• SPDR S&P International Small Cap ETF (GWX), down 24.2% year-to-date

To date, the best small-cap sampler is the iShares Russell 2000 (IWM) which has gained 14% for the month ended Aug. 15, almost double of the large-cap tracker SPDR S&P 500 (SPY), according to Dow Jones Newswires.

Many analysts were calling 2008 the year for the large-cap. The small-cap rally defies fundamentals and gives performance chasing-investors a run for their risk tolerance.

Other small-cap ETFs that have hit the market “sweet spot:

• iShares Russell Microcap (IWC): down 9.7% year-to-date; up 5.7% in the last month
• ProShares Ultra Russell 2000 Value (UVT): down 11% year-to-date ; up 12.8% in the last month
• ProShares Ultra Russell 2000 (UWM): down 13.1% year-to-date; up 11.3% in the last month
• iShares S&P Small Cap 600 Index (IJR): down 2.7% year-to-date; up 5.4% in the last month

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

The downtrend in July was bucked by the iShares Russell 2000 Index (IWM) with a 3.3% gain, reports Trang Ho for Investor’s Business Daily. It handily outpaced the SPDRs (SPY), which lost 0.9%. Year-to-date, the Russell is down 6%, while the S&P is off by 13%.

Performing even better was the iShares Russell Microcap Index (IWC), which gained 4.6%.

If we continue to trend toward economic recovery, small-caps should perform best. That’s because their small size makes them more nimble and quicker to act when the conditions are favorable. The opposite is true, as well: when the going gets rough, riskier investments tend to be the first to go as investors seek refuge in blue chips.

Other small caps include:

• SPA Market Grader Small-Cap 100 (SSK), down 10.3% year-to-date
• First Trust Small Cap Core AlphaDEX (FYX), down 6.4% year-to-date
• PowerShares Dynamic Small Cap (PJM), down 3.9% year-to-date
• RevenueShares Small Cap (RWJ), up 2.7% since March 17 inception