However, when controlling for quality, small-caps have generated decent returns. For example, DES weights holdings based on the aggregate cash dividends that companies are projected to pay in the coming year. PXSC is based on a RAFI Fundamental Index, which selects components based on fundamental factors like sales, cash flow, dividends and book value. FYX ranks stocks from the S&P SmallCap 600 Index on growth factors including three, six and 12-month price appreciation, sales to price and one year sales growth, and separately on value factors including book value to price, cash flow to price and return on assets. [Indexes Make a Difference With Small-Cap ETFs]

Over the past year, DES has increased 7.3% and PXSC gained 8.4%. In contrast, IWM rose 2.8% over the past year.

Nevertheless, over the short-term, “beta<” or sensitivity to broad market moves, will be more important that risk-adjusted returns, and small-caps will do relatively well in a rising market conditions, especially over the first months of the year when the lowest quality stocks typically outperform, according to Moskowitz.

For more information on small-capitalization stocks, visit our small-cap category.

Max Chen contributed this article. Tom Lydon’s clients own shares of IWM.