About 18 months ago, London-based analysts at Smith Barney were hunting for small-cap stocks when they became intrigued by the business analytics software sector. They zeroed in on a little-known company and put the stock through an extensive vetting process, which involves a research strategist focused solely on small-cap stocks, the global investment committee with economists and strategists from various parts of the firm, and a team of quantitative analysts. If a stock is deemed worthy, it is then put on Smith Barney's Small and Midcap Equity Model Portfolio.

In this case, a larger European software company ultimately bought the up-and-comer, but not before its trading price increased 43% since Smith Barney's private client investment strategy group put the stock on its model. That took all of four months, says Marshall Kaplan, a managing director at Smith Barney and head of its private client investment strategy group. "It was all weaved together in a usable platform and clients all around the globe benefited from it," Kaplan says of the company's small and mid-cap equity vetting process.

Strategies that enable investors to endure wave after wave of bad economic news are getting renewed focus. And small-cap stocks, which have a track record of performing best during periods of economic recovery, are getting a closer look from investors.

But the problem is a lack of research on small-caps. Whether at large brokerages like Smith Barney or smaller firms, finding winning small-cap equity opportunities involves doing a lot of research, whether in-house or farmed out.

JPMorgan Asset Management screens a database of about 2,000 companies with market caps between $50 million and $2 billion using a set of factors with a demonstrated success for predicting a company's success. Cash flows, revenues, insider purchases of company shares and changes in stock prices and trading volumes are all considered. It relies heavily on its team of 12 to 14 portfolio managers for research, many of whom drill down to get the information needed to keep its advisory clients in the know. One consumer sector analyst takes his research to the pavement-literally. He drops in on store managers to talk about their retail business, says Christopher Jones, JPMorgan Asset Management's chief investment officer of the small-caps equity investor management.

Not wanting to neglect the talents of smaller firms, JPMorgan has found a way to enhance its techniques with input from large independent firms outside the realm of wirehouses, as well as small research firms. JPMorgan defines parameters and situations for the types of stocks it is looking for, then asks those smaller companies to make face-to-face introductions to the senior management of well-run, small-cap companies.

"They are part of the information flow and idea flow that we put into our research and management engine," says Jones.

Whether at a small brokerage or a large investment bank, advisors need to find out their clients' appetite for small-cap stocks and should start by having a detailed conversation that covers every aspect of each client's life, as well as his or her investing goals, says Bruce Foerster, president of South Beach Capital Markets, a Miami-based investment advisory firm. Advisors need to hammer out exactly what their clients' financial goals are. It's one thing, for example, to be on the hunt for a hot software company, and quite another to invest for a family member's college education, he says.