NEW YORK (TheStreet) -- Small cap funds have been the top performers in 2010. Throughout this week I have highlighted my picks for the strongest small cap core and growth focused instruments.

Although investors holding funds representing those styles would have benefited throughout the first months of the year, the most impressive performance among the small cap ETFs has come from those focused on value.

As with ETFs focused on domestic small-cap core and growth, a number of funds dedicated to playing value have failed to generate enough interest from investors. The SPDR Dow Jones U.S. Small Cap Value ETF ( DVS), iShares Morningstar Small Cap Value Index Fund ( JKL), and the PowerShares Dynamic Small Cap Value Fund ( PWY) all have three-month average trading volumes that fail to breach 40,000.

On the other hand, the funds I consider to be the strongest and most stable value-focused small cap ETFs have changed hands over 100 thousand times per day over the past three months.

The ETFs meeting this criterion include Rydex S&P SmallCap 600 Pure Value ETF ( RZV); iShares Russell 2000 Value Index Fund ( IWN); iShares S&P 600 Small Cap Value Index Fund ( IJS); and the Vanguard Small Cap Value ETF ( VBR).

When it comes to performance through 2010, RZV has a comfortable lead over competitors, gaining over 20%. IWN, which has seen the second best performance this year, has gained 14%.

RZV's outperfomance can be attributed to its pure value index which sets it apart from competitors.

According to Standard and Poor's, the pure style weighting technique excludes the companies which exhibit qualities which place them in the middle ground between growth and value. There is no overlap between pure value and pure growth indexes, but this leads to a more narrow focus and higher turnover.

Ultimately, rather than tracking the broad slice of small-cap value companies from a market cap perspective, RZV's index is weighted according to value.

RZV's sector breakdown is considerably different from IWN, IJS and VBR. At 28%, consumer discretionary firms command the largest single slice of the fund's portfolio. Financials and industrials represent the next largest slices, making up 20% each.

Comparatively, financials represent the largest slices of the other three products, accounting for one third of both VBR and IWN and close to a quarter of IJS' portfolio. Consumer discretionary firms represent 13% of VBR and IWN and 15% of IJS.

The pure value index excludes a large number of companies that would otherwise be found in a typical broad small-cap value index. Therefore RZV tracks fewer companies and is considerably more top-heavy than its competitors. The basket the RZV tracks consists of 144 companies. Together, the fund's top 10 constituents account for nearly 20% of the fund's portfolio. Top holding, Quicksilver ( ZQK) accounts for over 4% of the fund.

IJS tracks 428 firms with 8.5% represented in its top 10 holdings. IWN's index has 1386 constituents with the top 10 representing 4.3% of the fund. VBR boasts 989 holdings with the 10 largest positions making up 4.1%.

Despite its strong performance throughout 2010, RZV is not for every investor. For one, with a beta of 1.8, RZV's performance will be considerably more volatile than its competitors. IWN and IJS each have a beta of 1.2; VBR's beta is close to 1.3. Investors who get nervous during market dips should consider a more stable product like IWN or IJS rather than RZV.

Aside from being the most volatile among all of the small-cap value ETFs considered, RZV is also the most expensive with a 0.35% expense ratio. Comparatively, IWN and IJS charge investors 0.33% and 0.25% respectively. Vanguard's VBR is the ideal choice for cost conscious investors with an expense ratio of only 0.14%.

For now, small-cap value is scoring the biggest gains among style-based ETFs, with RZV leading the pack by a comfortable margin. Aggressive investors may want to reach for the extra return while this segment of the market is hot, but more conservative investors looking for a longer term holding may be better off in one of the broader funds.

-- 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.

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