After a smooth ride last year, the U.S. stock market is experiencing a shaky 2015 due to successive issues that have been lashing the bourses and heightened volatility. In Q3, global growth concerns played foul, crushed all risky assets and even held the Fed back from ratifying a lift-off in its September meeting.

Things turned messier to start Q4. While on the one hand, a slowdown in the labor market over the last three months almost killed the possibility of hike at the December Fed meeting and guaranteed cheap money inflows throughout this year, on the other a weak job data roused  anxiety over U.S. economic health (read: ETFs that Gained & Lost Post Dismal Job Data).

Overall, as just the September job data came out, the stocks surged and bond yields slumped on the belief that this is bad news for the economy but good news for the market. The Fed funds rate for the longer run was also cut to 3.0-4.0% from 3.3-4.3% suggesting a slower rate hike trail.

Having said this, we would like to note that though the momentum has slowed, the U.S. economy is still the lone star in the developed market pack. The Euro zone is buckling under the pressure of deflationary concerns; China is busy in averting a hard landing, Japan is also seeing deceleration in its growth pace and the broader emerging markets are on the line.

This economic trend should hammer out a good deal for the U.S. small-cap value ETFs. Normally, smaller companies pick up faster than the larger ones in a growing economy. Since these pint-sized securities usually focus more on the domestic market, they are less ruffled by international worries than their globally exposed larger counterparts. This is especially true as a pile of woes hit a number of developing and emerging nations this year.

Moreover, due to lesser foreign focus, small-cap ETFs are not exposed to risks emanating from a still-stronger dollar. Having said this, we emphasize value picks in the small-cap spectrum given the flare-ups in economic uncertainty.

Small-caps have the potential to offer good returns in a trending market, but these are often blamed for increasing volatility. Thus, investors seeking equity appreciation with a lower level of risk should look for value in the small-cap space (read: No Imminent Lift Off? Time for These Dividend ETFs).

Value investing takes into account under-priced securities. These stocks normally have low P/E and P/B ratios plus high dividend yields. In short, small-cap value ETFs have the potential to offer investors both capital appreciation and decent current income which could be useful in the present low-rate environment. Below, we have highlighted some of the top performing small cap value ETFs that could be the ones to watch in the months ahead (see all small-cap ETFs here).
 
Vanguard Small-Cap Value ETF (VBR)
 
This fund provides exposure to the value segment of the U.S. small cap market by tracking the CRSP US Small Cap Value Index. It holds a large basket of 840 stocks, which is widely spread across individual securities as none of these has more than 0.5% of assets.In terms of sector exposure, financials dominates the portfolio at 30.3%, followed by industrials (20.4%) and consumer services (12.8%). The ETF is quite popular with AUM of more than $5.62 billion. It is one of the low cost choices in the small cap space, charging 9 bps in fees per year from investors.

The fund added about 2.3% in the last one month (as of October 8, 2015) and has a dividend yield of 3.01% (as of the same date). VBR has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
 
SmallCap Dividend Fund (DES)

DES looks to track the performance of the WisdomTree SmallCap Dividend Index. The fund is one of the popular choices in the small-cap value space with about $1.2 billion in AUM. It is a low cost (38 bps) option in the small-cap value ETF space.

Holding more than 700 stocks in its basket, the product puts about 10% of its total assets in the top 10 holdings, suggesting low concentration risk. Sector wise, this ETF is heavy on financials (25.3%) followed by consumer discretionary (15.8%) and industrials (15.2%).

The fund advanced about 4.4% in the last one month. DES has a yield of 3.23% per annum. The fund carries a Medium risk outlook along with a Zacks ETF Rank #3.

iShares Morningstar Small-Cap Value ETF (JKL)

JKL is designed to track the performance of the Morningstar Small Value Index. The fund invests about $378.5 million of assets in its 247-security portfolio. No single firm makes up more than 1.05% of the portfolio. 

Only about 10% focus on the top-10 holdings suggests extremely low concentration risk. As such, we have a ‘Medium’ risk outlook for JKL for the near term (see Create a Diversified Portfolio Using ETFs).

The choice charges investors only 0.30% for this exposure which makes it a reasonable one in the space. In terms of sector exposure, financials (40.22%), consumer discretionary (12.3%) and industrials (11.4%) rule the product.  The fund returned about 3.5% in the last one month. JKL has a yield of 3.13% per annum. This product also carries a Zacks ETF Rank #3.