We’ll say it again: The choice of assets can make a big difference.

There was an interesting article in the Wall Street Journal from March 8, 2011 called “Why Small-Cap Funds are Lagging.” It cites a study by Credit Suisse showing that “small-cap funds have increasingly been investing in companies larger than their category name would indicate—and the average fund is underperforming its benchmark.”

The article goes on to say “The average market capitalization of a company in a small-cap fund was about $3.1 billion at the end of 2010, compared to the average market cap of the benchmark Russell 2000 index of about $1.3 billion. The $1.8 billion gap between the two is the largest since September 2008.”

“In 2010, the average small-cap fund lagged the Russell benchmark. The average small-cap fund gained 24.3%,” compared with 26.85% for the Russell 2000. “In February, just 27% of Russell 2000 core funds beat the benchmark.”

At Merriman, we use Dimensional Fund Advisor (DFA) funds for a variety of reasons, including their lack of style drift and their expertise in buying small cap stocks. The weighted average market cap in DFA’s U.S. Small Cap Portfolio is $1.24 billion, much closer to the market cap of the index than the small-cap funds cited in the study.

In 2010, DFA’s U.S. Small Cap fund returned 30.70%, handily beating the Russell 2000. In February 2011 it returned 5.61% versus the Russell 2000 return of 5.48%.

Style consistency and expertise are important considerations when choosing funds.