Large-cap stocks are showing up cheap relative to their small-cap counterparts, giving related exchange traded funds (ETFs) a chance for growth when the markets recover.

Despite the valuations, do not be fooled, there is still some uncertainty with large-caps and the market in general. The economy is not settled yet, and may sink more. The presidential elections have a lot to do with the future of capital gains rates, as well, reports Billy Fisher for The Street. Furthermore, large-caps have fallen off so much because of their heavy exposure to the beleaguered financial industry.

Small-caps are performing better because they don’t have the exposure to the Lehmans and the AIGs.

As a sign of the time for financials and large caps: AIG (AIG) has been booted out of the Dow Jones Industrial Average and replaced with Kraft (KFT). Kraft is the world’s second-largest food maker, and its addition to the fund leaves the Dow underweight in financials, reports Dow Jones Newswires.

The most beaten-down areas provide the best opportunity for growth when there’s a market recovery in the works. When that happens, it’s worth keeping an eye on those sectors. Large-cap ETFs provide even and affordable exposure to large-cap shares such as:

  • iShares S&P 500 Growth Index (IVW), down 15.1% year-to-date
  • iShares S&P 500 Index (IVV), down 16.1% year-to-date
  • iShares S&P 500 Value Index (IVE), down 17% year-to-date

Investors shouldn’t consider entering this or any other asset class until they are above their trendlines. So far, large-cap value is down 9.4% for the past six months, blend is down 7.1%, and growth is down 4.5%.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.