NEW YORK ( TheStreet) -- Small cap ETFs are leading the markets higher in 2010. I looked at domestic core ETFs Tuesday. Today, I turn to the growth funds.

Growth has been the underperforming half of the small-cap market this year, while value has outperformed. These growth funds are still up around 8% to 11% through May 11, well ahead of the 4.4% return for the SPDR S&P 500 ( SPY), but the gap between the iShares S&P Small Cap 600 Growth ( IJT) and Value ( IJS) is about 3%, for example.

A big reason for the difference between growth and value is sector allocation. Small cap financials have done well this year, with mutual fund FBR Small Cap Financials ( FBRSX) up more than 20% in 2010; value tends to have larger financial allocations.

The performance gap between small-cap growth ETFs, however, is much narrower. Year to date, the gap between iShares Morningstar Small Cap Growth ( JKK) and Vanguard Small Cap Growth ( VBK) is less than 3%.

The funds tend to have similar portfolios, and the ones with the largest deviation from the group have been underperforming this year. Therefore, it requires digging a bit deeper to see which ETFs are the best in the pack.

A comparison of volume shows that three funds attract most of the trades : iShares Small Cap 600 Growth ( IJT), iShares Russell 2000 Growth ( IWO) and Vanguard Small Cap Growth ( VBK). Of the three, IWO dominates with more than five times the volume of the other two funds combined. Traders will definitely find IWO the better choice.

IWO holds 1,276 stocks, more than triple the holdings in IJT and ahead of VBK's 1,000 holdings. In terms of sector allocations, the three funds are very similar.

There are few major differences that stand out. One is the 24% heath care exposure in IWO, which is more than the 18% in the other two ETFs. Where IJT is underweight health care (relative to IWO), it is overweight financials, with exposure nearly double the other two funds, at 14% of assets. VBK, meanwhile, takes a balanced approach, with technology and industrial exposure about 3% higher than the other funds, at 26% and 15%, respectively.

This balanced approach makes VBK a better choice for long-term, buy-and-hold investors because the fund is less likely to fluctuate from sector exposure.

In terms of their allocation between stocks, IJT has about 10% of assets in its top ten holdings, led by Skyworks Solutions ( SWKS) and St. Mary Land & Exploration ( SM). IWO holds only 5.8% of its portfolio in the top 10 holdings, with Human Genome Sciences ( HGSI) and UAL ( UAUA) at the top. IWO also has SWKS in its top 10.

VBK has some different names up top and has a more balanced portfolio than even IWO, despite have fewer holdings. It allocates only 4.8% of assets to its top 10 holdings, which is headlined by Rovi ( ROVI) and MSCI ( MXB).

Among the growth funds, the best choice for now appears to be Vanguard Small Cap Growth ETF ( VBK), which is up 10.7% this year. The fund has a slight performance advantage in 2010 and in the past year. VBK has a low fee of 0.14% and ample volume of nearly 150,000 shares per day.

Small cap ETFs have led the market higher in 2010. Small-cap growth has lagged behind value, but it has led mid-cap growth and large-cap growth. In order to beat small-cap value, it will need the performance of the technology and healthcare sectors will need to improve.

-- Written by Don Dion in Williamstown, Mass.
At the time of publication, Dion Money Management was not long any equities mentioned.

Don Dion is president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.