Large-cap exchange-traded funds, which tend to be more defensive than small and medium-sized company exchange-traded funds, have suffered their fair share this year.

The iShares Morningstar Large Core Index ( JKD), iShares S&P 500 Index ( IVV), Vanguard Large Cap ETF ( VV) and the iShares Dow Jones U.S. Index ( IYY) have declined 35.6%, 39.3%, 41.2% and 41.8% this year, respectively. These results are in line with the minus 41% average return by large-blend mutual funds tracked by Morningstar.

Some money managers are favoring large-caps. "It's a good time to be in large-caps versus small-caps right now," said Kelly Campbell, founder and principal of Campbell Wealth Management. "They are net creditors versus being net debtors."

Campbell's largest positions have been in large-cap equities. As of Oct. 23, he had a portfolio that included a 16% allocation in large-cap growth stocks, 16% in large-cap value and 12% in large-cap foreign equities. "If I am going to be in the stock market at all right now, I want to be in large-caps," he said. "When the market turns around, small-caps may begin to outperform large-caps, but it's not happening yet."

A couple of benefits to ETFs are lower taxes and access to a wide array of asset classes. "ETFs can do in-kind transactions, which are a significant advantage," he said. "You can also use ETFs to get into a lot of types of non-traditional investments, which can reduce the correlation of your returns to the overall stock market."

Rafael Resendes, portfolio manager of the Toreador Large Cap Fund ( TORLX) and co-founder of the Web site ValueExpectations.com, agrees with Campbell on the attractiveness of large-cap equities. "Over time, large-cap stocks have proven to be less risky than small-cap stocks," he said. "They offer a higher degree of safety as well as the benefit of higher returns than fixed-income investments."

Resendes also uses large-cap ETFs in his mutual fund. According to Morningstar, the SPDR S&P 500 ETF ( SPDR) and the Financial Select Sector SPDR Fund ( XLF) were among Resendes' top holdings as of Oct. 31.

He says there is a great deal of opportunity in large-caps for those who have the courage to invest in what has been a tough market. "There is an emotional cost and a financial cost to buying stocks," Resendes said. "Emotionally, it's a difficult time to buy stocks right now. Financially, it's a wonderful time to buy stocks at these valuations."

Resendes thinks it will not take much for many stocks to bounce back, with the bar already set so low. "You can buy stocks at levels that have very low expectations right now," he said. "Doing so will stack the odds in your favor."

For investors who are looking for only one or two large-cap stocks to round out their portfolio, Resendes believes Google ( GOOG) and Coach ( COH) are worthy of consideration. "When Google was trading above $700 a share, we thought expectations were too high," he said. "At $300 a share, you are paying for it to only grow at an annual rate of around 5% to justify its current price."

In October, Coach reaffirmed its fiscal 2009 EPS guidance that calls for 10% growth. Resendes is optimistic toward the company's plans to continue to grow its brand. "Coach has about 300 retail stores in North America," he said. "They believe that the market can support 500."

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