The broad market rally that began March was initially led by small-caps, but a shift has given  large-caps a place in the spotlight. What happened?

• Donna Kardos Yesalavich for The Wall Street Journal reports that small-caps were hit the hardest on the way down, because of the perception they are risky, given their lower liquidity, lack of international exposure and higher trading volatility. (Reasons why both large and small-cap ETFs can round out a portfolio). As a result, small-caps got so cheap that investors snapped them up in droves. The interest drove prices back up to their highest valuations since 1996, putting large-caps back in favor.

• Large-caps may also get a boost from their stability, something investors are still seeking as the markets recover. (Read about the small cap ETF rally here). As a result of the shift, John Spence for The Wall Street Journal notes that the iShares Russell 2000 Index Fund (NYSEArca: IWM) saw $1 billion in outflows in October. It brought in $2.2 billion in the previous three months.

• Profits for smaller companies are also expected to be slower in the fourth quarter, reports Lynn Thomasson and Sapna Maheshwari for Bloomberg. Earnings from small companies are projected to increase 38%, about half as fast as S&P 500 income. (Ways to play a large-cap rally.)

For more stories about asset class ETFs, visit our asset class category.

• SPDR S&P 500 (NYSEArca: SPY): up 23.6% year-to-date

• S&P 500 Growth (NYSEArca: IVW): up 28.3% year-to-date

• S&P Small Cap 600 (NYSEArca: IJR): up 17.7% year-to-date

• S&P Small Cap 600 Growth (NYSEArca: IJT): up 20.2% year-to-date

For every portfolio need, there is an ETF to fill it. Whether you’re looking in a niche area of the market or need an all-encompassing broad-based fund. Here is a simple breakdown from Aaron Levitt on Investopedia to help get you started.

Theme Funds: Some ETFs track an index centered around a theme or niche of the market, ranging from small-caps to solar energy, and everything in between. Examples of this include Claymore Global Solar Energy (NYSEArca:TAN) or Vanguard Small Cap ETF (NYSEArca:VB).

Broad-based “simple” ETFs: Broad-based funds are all-encompassing fund that give total exposure to a segment of the market. There are plenty of broad-based ETFs that can help get any portfolio on the right track. For instance, SPDR S&P 500 (NYSEArca: SPY) and Vanguard Total Stock Market (NYSEArca: VTI) can get you started. (Four rules for ETF investing).

Bonds: This area should not be forgotten, and can add the right amount of diversification from the equity market. Vanguard Total Bond Market (NYSEArca: BND) is a broad-based bond ETF that covers most bases. (How bonds are overcoming challenges).

Extras: Once the core of your portfolio is in place, you can play around with the extras and the niche or fancy funds. iShares S&P North American Natural Resources (NYSEArca: IGE) is a good example of this. (Do alternative ETFs belong in your portfolio?)

Becoming a good trader: Being a good trader involves education, time, patience, trial and error and a willingness to examine your good moves along with the bad ones. (10 tips to improve your ETF game).

A Plan: Last, but not least, you need a plan for investing. Assess your risk, your time horizon and your strategy. We use a trend following strategy, which you can read about in The ETF Trend Following Playbook.

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

Exchange traded funds (ETFs) are baskets of securities with an underlying index that trade all day on an exchange like a stock. They’ve been around since 1993. The first ETF, the SPDRS (NYSEArca: SPY), tracked the S&P 500. The strategy of indexing is not new, however. Barclay’s created it in 1971.

Some of the advantages of ETFs include:

• You always know what you’re buying, because they replicate indexes. The holdings of those indexes are easily available and posted daily.
• ETFs offer safety in numbers. They have more diversification because they’re a basket of stocks rather than one individual stock.
• Their performance can be easily tracked.
• ETFs tend to have lower expenses and fees because they passively track indexes. There are no additional fees to pay to a fund manager. The average fee for a mutual fund is about 1.6%, while for a large-cap growth ETF it’s about 0.15%.
• They’re tax efficient because investors rarely generate capital gains.

It’s easy to trade ETFs. Esko Mickels for Morningstar compiled a list of tips all ETF investors should have under their caps, and we tossed in a few bonus ones of our own, as well:

1. Timing the trade: Be careful buying and selling ETF during the first and last 30 minutes of the day. An ETF’s volatility is highest at those times and wide spreads are more common.

2. Exercise caution on volatile days: Volatile days in the market can throw an ETF’s underlying value off of its bid-ask spread, so tread with caution.

3. Limit orders: Use these to define the price you’re willing to pay, thereby limiting your market impact. Read more on limit orders here.

4. Select ETFs with high trading volume: While high volume doesn’t necessarily equal liquidity, it implies that a limit order for a few hundred shares near the current mid-market price should be filled quickly. These also remain closer to their NAV.

5. Trade during an open underlying market: If you are investing in overseas markets, it is best to trade the correlating ETF when the overseas market is open. This avoids any uncertainty.

6. Use a stop-loss: A stop-loss is an automatic sell order that is triggered when an ETF’s price falls to a predetermined threshold. The most common stop-loss is set at a specific price, which allows you to limit losses. A trailing stop-loss ratchets up the stop-loss price as your ETF’s price increases. Read more on stop losses here.

7. Watch the fees: Consider broker fees for every transaction. The more trades you do, the more you are paying in fees, taking away from your gains.

8. Leveraged ETFs: Pay attention to thee funds daily, as they can move in radical directions. These also require re-balancing often, meaning more fees to rack up. More on leveraged and inverse ETFs can be found here.

9. Market makers: Market makers working for the designated brokers add liquidity and help keep the bid-ask near the ETF’s underlying value, so having more is generally desirable.

10. Distribution date: Most ETFs are very tax efficient because their turnover is low. There’s the potential that investors holding some ETFs on the day of record can trigger a capital gains event. More information on taxes and ETFs can be found here.

Some major assets are priced at 1999 levels, and if the current situation resembles past ones, there may be opportunities on which you can capitalize, remarks Stacy Johnson for Wise Bread.

Case in point: housing prices have been greatly reduced, and commercial properties may now provide better cash-on-cash return – not including tax write-offs that may make them extra enticing.

• iShares Dow Jones U.S. Real Estate (NYSEArca: IYR): up 19.8% year-to-date

• iShares FTSE NAREIT Industrial/Office Complex (FIO): up 17.9% year-to-date

Another example is the stock markets. After the spectacular gains since the March lows, the stock market is still lower than it was prior to January 2000.

• SPDRs S&P 500 (NYSEArca: SPY): up 20.3% year-to-date

If you are one of the lucky few that does have money but doesn’t know what to do with it, luxury items have cheapened. The opportunities found in lower prices don’t come often.

• Claymore/Robb Report Global Luxury (NYSEArca: ROB): up 50.5%year-to-date

In the sage words of Warren Buffet, “be fearful when others are greedy and greedy when others are fearful.” It is also prudent to have a plan in place before you invest. We use the 200-day moving average to choose those areas that could be about to enter a long-term uptrend. You can read more about the trend following plan in our book, The ETF Trend Following Playbook.

For more information on trend following, visit our trend following category.

Max Chen contributed to this article.

According to Don Dion for The Globe and Mail, he’s chosen his top five ETFs based on the fact that he feels they capture their theme, provide liquidity and exploit the advantages of the ETF model. This is by no means a conclusive list – there are many, many worthy ETFs out there.

These five ETFs address important themes in the financial world of today:

Biotech. iShares Nasdaq Biotechnology (NasdaqGM: IBB) is up 11% year-to-date. Biotechs include many start-up companies that burn out, but a lucky few do strike it rich. Instead of shifting through all the possible companies, the ETF offers a great way to pick up the sector.

TIPs. iShares Barclays TIPS Bond (NYSEArca: TIP) is up 7.1% year-to-date. This fund tracks securities that range in duration from one to 20 years. Indiividual TIPs bonds are taxed on inflation adjustment and TIP distributes inflation-adjustment as income.

India. WisdomTree India Earnings (NYSEArca: EPI) is up 85.8% year-to-date. The fund offers access to the Indian equity market while allowing for the limitations that foreigners might have on investing. Potential investors should note that emerging market equities tend to be more volatile.

Gold. SPDR Gold Shares (NYSEArca: GLD) is up 15.4% year-to-date. Gold has been the talk of the markets these days. Buying gold is a good way to diversify a portfolio. GLD tracks the price of gold stockpiles, so investors won’t be tracking the price through derivative holdings.

S&P 500. SPDRs S&P 500 (NYSEArca: SPY) is up 16.7% year-to-date. The fund has been providing low-cost exposure to the S&P 500. SPY is a good proxy for the market as a whole and Dion believes it to be a must-have fund for any well-rounded ETF portfolio.

Max Chen contributed to this article.

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

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.

Short-term incentives and measures to stoke the economy are not fixing the real problem of sustained growth as businesses reduce payrolls, bank lending contracts, and consumers save more and spend less, comments Steven Pearlstein for The Washington Post.

The Federal Reserve took bold and necessary steps to prevent the collapse of the financial system. But the Fed also created so much liquidity that some fear that another financial bubble is forming.

As the money flew off the printers, the Fed was cutting interest rates in inter-bank lending to basically zero. However, banks kept interest rates unchanged for everyone else, and the result is that “spreads” between bank-to-bank lending and lending to everyone else are close to record highs.

The entities that are actually borrowing are hedge funds and other investors who use the money to purchase stocks, corporate bonds and commodities, pushing prices higher. Some ETFs to watch for activity include:

• DIAMONDS Trust, Series 1 (NYSEArca: DIA): up 14.0% year-to-date
• PowerShares QQQ (NasdaqGM: QQQQ): up 43.3% year-to-date
• SPDRs S&P 500 (NYSEArca: SPY): up 19.1% year-to-date
• iShares iBoxx $ Invest Grade Corp Bond (NYSEArca: LQD): up 8.9% year-to-date
• iShares S&P GSCI Commodity Indexed Trust (NYSEArca: GSG): up 4.9% year-to-date

The excess liquidity is also being used to finance new “carry trade,” borrowing at low U.S. rates to buy bonds in places with higher rates.

• POWERSHARES DB G10 (NYSEArca: DBV): up 17.7% year-to-date

The Central Bank is determined to stay its course, using anything that will strengthen the balance sheets. Fed officials won’t be increasing interest rates and reducing liquidity until they decide the economic recovery has a proper foothold.

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

Max Chen contributed to this article.

It’s important to keep a few tidbits in mind when picking out a stock, according to InvestingFirstSteps.

Beat the market? A lot of investors are too focused on “hot tips” or phenomenal returns in certain stocks. It should be noted that even professional traders who are paid to track the stock markets rarely provide returns of 11% or more, on average. We follow a 200-day moving average to help guide us. You can read more about this strategy in The ETF Trend Following Playbook.

ETFs. ETFs are popular and easy to use. They’re transparent, meaning you know what’s in them at all times. They trade all day on an exchange, just like a stock. And, on average, they’re cheaper than mutual funds. ETFs seek to reflect returns on the underlying index such as the S&P 500, Dow Jones Industrials Average and NASDAQ Composite. The ETFs listed below are based on a major indexes in the United States – from this point, you can access commodities, currencies, specific sectors and much, much more.

• SPDRs S&P 500 (NYSEArca: SPY)
  

• Diamonds Trust (NYSEArca: DIA)
  

• PowerShares QQQ (NasdaqGM: QQQQ)
  

For more information on investing, visit our ETF 101 category.

Max Chen contributed to this article.

During the credit collapse, investors dumped gold, corporate bonds, stocks and commodities in favor of U.S. Treasuries, comments Gary Gordon for ETF Expert. Then starting in March of 2009, stocks and gold rallied while interest in Treasury bonds waned. However, the three asset classes began to move in unison over the last three months.

What could be the reasons? Among the theories being floated (and the real answer could include any combination of these) include:

• Investors are beginning to take all that cash from under the mattress and are putting it back into all corners of the market, whether it’s low-risk or high-risk assets
• Portfolios are being swapped for entirely new strategies
• Gold is in demand for its hedge against the weakness of the U.S. dollar
• Stocks, to an extent, may also be used to hedge against inflation and people are buying them to avoid missing out any any further recoveries in the markets
• Long-term Treasury yields have been significantly diminished and it may be the first asset class to decouple from this threesome, says Gordon

In the off chance that investors start favoring Treasuries again, stock investor, and maybe some gold traders, may think twice and consider shifting wealth into the safe haven. On the flip side, the stock markets may gain more if investors favor risk above the safety of Treasuries.

• SPDRs S&P 500 (NYSEArca: SPY): up 11.1% in the last three months

• SPDR Gold Shares (NYSEArca: GLD): up 5.4% in the last three months

• iShares Barclays 20+ Year Treas Bond (NYSEArca: TLT): up 5.2% in the last three months

Max Chen contributed to this article.

SPDR ETFs first traded on the American Stock Exchange in 1993 after being issued by State Street Global Advisors. The so-called “spiders” are index funds that track the S&P 500 Index and shares of the traditional SPDR ETFs hold a stake in the 500 stocks represented by the S&P 500, says Christina Granville for Investopedia.

SPDRs have a fixed number of shares that are bought and sold on the open market. This is because SPDR ETF shares represent a portion of  interest in the unit investment trusts (UITs) that hold the stocks of each of the underlying indexes that they represent. Holders of the SPDR ETFs have some voting privileges.

Ultimately, the success of the SPDRs opened the door for more investment options, including industry sectors and market capitalizations within the S&P 500. These ETFs include the Financial Select Sector SPDR (XLF) and the Health Care Select Sector SPDR (XLV). There are nine in total.

Their success even brought about the creation of SPDRs that track the Dow Jones Industrial Average. The SPDR Dow Jones Large Cap (ELR) and other similar funds retained the “SPDR” moniker, even though they’re not related to the S&P 500.

There are now hundreds of versions of the SPDR ETFs worldwide, and Granville notes that they’re often viewed as the “thoroughbreds” of their strategy.

For more on ETF history, visit our ETF 101 category.