Alternatively, investors can consider smart beta small-cap ETFs to potentially diminish downside risks and still participate on upside potential. For instance, the Legg Mason Small-Cap Quality Value ETF (NasdaqGM: SQLV) tries to reflect the performance of the Royce Small-Cap Equity Value Index, which is comprised of small-cap companies with lower than average valuation, higher than average profitability and higher than average debt coverage.

The PowerShares DWA SmallCap Momentum Portfolio (NasdaqGM: DWAS) follows the popular Dorsey, Wright & Associates proprietary selection methodology that is designed to identify small-cap firms with positive relative strength characteristics in an attempt to follow companies with strong forward momentum.

Additionally, the Oppenheimer Small Cap Revenue ETF (NYSEArca: RWJ) follows a revenue weighting methodology, which could provide diversified exposure to the market, is not influenced by stock price, reflects a truer indication of a company’s value and offers stable sector exposure. Moreover, revenue weighting may provide a more value-oriented portfolio and historically outperformed in a value-driven market while showing lower drawdowns during growth-driven markets.

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