As an investor, I have been most interested in mid-cap stocks. I believe that selecting the right mid-cap stocks will leave you with the next large cap companies some day.

Over the last year, however, most of my mid-cap holdings are looking more like small cap stocks with some falling by 50% or more. These companies are not alone. Some former large cap companies now have values that were formerly considered small cap. Witness General Motors Corp. (NYSE:GM), Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE).

Outside of former large cap companies, which have fallen on hard times, I am noticing a definite lack of news on the major financial websites about small cap companies.

The current economic situation appears to have everyone focused on the big picture: economic growth (or shrinkage), employment, the financial sector and the latest numbers for the large companies that may be used as signals for the health of the overall economy.

But what is happening with the small cap companies?

I would like to put forth the hypothesis that smaller capitalization stocks may be the place to be as the economy starts to recover. I have several reasons why I think small caps will outperform:

• Many of the small cap companies that I follow are making just as much or almost as much money as they were a year ago. Their growth may have slowed but they are still profitable. This profitability is not currently reflected in their stock values.
• Smaller companies can be more nimble in reacting to the changing economic environment. They can reduce or increase their work force quickly and change their products or services to adjust to changing conditions.
• Small cap companies are currently running under the radar of the investing public. As focus reshifts to a recovering economy, investors will be looking for stocks that can appreciate the most. I believe many will pick the small cap sector.

For investing in small cap there is a diverse selection of ETF offerings. The screen I used came up with 28 ETFs focused on small cap. The major indices tracking small cap are the S&P Small Cap 600 and the Russell 2000 index. There are numerous other indices that focus on growth, value, dividends or some other more focused criteria. Here is a listing of the largest small cap focused ETFs with their market cap and yield:

For those of you who like to stay from the thundering herd and look for investments at the margin here are the best performing small cap ETF for the last 30 days and the highest yielding small cap ETF on my screen:

• Best performing: Rydex S&P Smallcap 600 Pure Value, NYSE:RZV, 1 month return: +20.04%, yield: 4.46%.
• Highest yield: WisdomTree Smallcap Dividend, NYSE:DES, 1 month return: +7.32%, yield: 7.65%.

If you also think that small cap stocks will be the place to be for the next 6 months to a year take a look at these ETFs.