However, the market has gotten the jitters amid hints that the Fed is planning on tapering off this easing. And it’s a reasonable possibility — the U.S. economy, while sluggish, is showing fundamental improvement. Unemployment is decreasing, real estate has rebounded and auto sales are up.

Also in anticipation of a Fed move, the 10-year Treasury bond has spiked from 1.7% to 2.2% since April.

This week, however, we might finally get more clarity on things following the Fed’s FOMC meeting, which concludes Wednesday.

While no one knows what Ben Bernanke will say for sure, investors should be prepared for the possibility of the Fed tightening down, and the potential for interest rates to continue to climb.

In such an environment, bonds tend to perform poorly, as reflected in many bond funds’ poor performance in the past month — the PIMCO Long Duration Total Return (PLRPX) and Vanguard Long-Term Investment-Grade (VWESX), for instance, have each shed nearly 4% as yields have inched upward.

The reason for this is the inverse relationship between the price of a bond and current interest rates. Prices on existing bonds need to fall — pushing up their yields — to compete with the higher rates on newly issued debt. The result is that those bonds take a loss.

To deal with this, one good idea is to seek out funds with a low duration, which is how long it takes for a portfolio to mature. This means a manager will get money back quicker, then can redeploy the capital into higher-yielding securities. (As a general rule of thumb, a low duration is under three years or so.)

In light of this, one option investors might consider right now is the Lord Abbett Short Duration Income (LALDX) fund, whose holdings have an average duration of only 1.9 years. LALDX is run by four portfolio managers and 28 analysts who search for high-quality corporate, mortgage and government bonds. According to the fund, the goal is to “provide a middle ground between money market and higher yielding portfolios with longer duration.” LALDX has a 3.76% trailing 12-month yield and a 30-day SEC yield of 2.17%. The fund’s A shares have a low expense ratio of 0.59%, though they also require a 2.25% sales charge.

Interestingly enough, some bonds have virtually no duration risk, such as floating-rate notes. These are investments that automatically adjust for interest-rate changes.

A top exchange-traded fund in the space is iShares Floating Rate Note ETF (FLOT). The fund primarily focuses on high-quality issues and boasts a high concentration of notes from financial institutions like JPMorgan Chase (JPM), Citigroup (C), Goldman Sachs (GS) and Wells Fargo(WFC). While FLOT is cheap at just 0.2% in expenses, note that it’s also not a high-yielder, either, with a current TTM yield of 0.84% and an SEC yield of 0.37%.

Of course, the thing to keep in mind with both LALDX and FLOT is that both probably aren’t going to produce eye-popping returns. If you’re willing to ramp up your risk, you could look at more aggressive approaches such as shorting bonds.

One way to do this is via the ProShares Short 20+ Year Treasury ETF (TBF), which seeks to return the inverse of the Barclays U.S. 20+ Year Treasury Bond Index. No doubt, because of the high duration, the returns can be juiced — but you also have to keep in mind that inverse and leveraged funds involve more risk, too. This isn’t for the faint of heart, but if you want to play, TBF chartes 0.95% in expenses.

Just take a look at this sample:

Of course, the trend should be no surprise. From 2000 to 2007, there was a huge burst of going-private transactions, led by firms like KKR (KKR), Blackstone Group (BX), Apollo Global Management (APO) and Carlyle Group (CG).

But for those firms to actually make money, they need to either take their portfolio companies public or sell them. This has another interesting name: harvesting.

With the equities markets in bull mode, the preferred option has been IPOs. After all, the average return of an IPO for 2013 is 20%, while the gain has been a sizzling 29% for those companies with market caps over $1 billion.

The wave has been about more than just a strong market, though. For the most part, private equity firms have become more operational with their portfolio companies. In fact, they didn’t really have a choice. With the financial crisis in 2008, there was an urgent need to restructure many companies, which often meant greatly reducing the cost structures.

Plus, another benefit has been rock-bottom interest rates. Private equity firms have been able to refinance their existing debt, which has meant even lower costs.

Toss in the uptick in the economy — which translates to growth on the top-line as well — and it should be no surprise that private equity-backed deals are hot.

Still, investors should be a bit wary. When top dealmakers are eager to unload assets, some skepticism is warranted. For example, Apollo’s CEO Leon Black recently said:

“We think it’s a fabulous environment to be selling. We’re selling everything that’s not nailed down. And if we’re not selling, we’re refinancing.”

That’s hardly something you want to hear … especially when you’re the buyer of IPOs.

Of course, Wall Street never seems to lack enthusiasm and speed for the most part. Thus, there is a healthy pipeline of major private equity deals ready to tap the markets, such as HD Supply andCDW.

But investors will reach a breaking point eventually … and maybe pretty soon. Just a few concerns include rising interest rates, volatility in the equities markets and continued weakness in Europe and even China.

The bottom line is that IPOs are a risky game, and booms generally do not last long. So if you see a private equity deal, you still need to do your homework. Things may start to get tougher quickly.

For example, the return of small-cap stocks with market caps between $100 million to $1 billion was a dismal 3.5% loss so far in 2013.

Of course, there’s a way to help deal with this: invest in a fund.

By doing so, you get the benefits of expert portfolio management as well as diversification. The returns can also be attractive. Consider that — according to Morningstar.com — the average gain for small-cap funds is 8% for 2013.

With that in mind, let’s take a look at four small-cap funds to consider.

T. Rowe Price New Horizons Fund

The T. Rowe Price New Horizons Fund (PRNHX) has a sterling long-term track record. But when a new manager — Henry Ellenbogen — came on board three years ago, there was some trepidation. As it turned out,  though, there was nothing to worry about. During Ellenbogen’s tenure, he has racked up an annual average return of 23.6%.

A key part of his strategy has actually been to invest in pre-IPO companies. A prime example was Workday (WDAY), which has gained over 120% since its IPO in October 2012.

The portfolio is not chock-full of tech operators, though. Rather, Ellenbogen has taken an expansive approach and his investments have spanned diverse industries like consumer cyclicals, industrials, healthcare/biotechs and financial services. Some of the top holdings include Catamaran Corp. (CTRX), Clean Harbors (CLH) and Roper Industries (ROP).

Vanguard S&P Small-Cap 600 Growth Index ETF

If you want to take an index approach, one strong option is theVanguard S&P Small-Cap 600 Growth Index ETF (VIOG). The average market cap is $1.5 billion and all the stocks are based in the U.S. There is also a strong bias towards tech companies, which make up about 22% of the portfolio.

Of course, a big advantage of the VIOG exchange-traded fund is the low cost. Consider that the expense ratio is a rock-bottom 0.2%.

In other words, this leaves more money for investors. Plus, over the past year, the return was an impressive 27.9%.

WASATCH INTERNATIONAL GROWTH FUND

Emerging markets have been volatile lately. But when looking at the long-term, the growth opportunities still look attractive … and the Wasatch International Growth (WAIGX) fund looks for small caps in these markets.

The portfolio manager Roger Edgley has put together a strong track record over the past three years, with an average return of 19.6%, and he has done well navigating the recent swings. So far this year, the gain is a respectable 10.4%. Keep in mind that Rogers focuses on higher-quality companies, which helps to dampen some of the risks.

His portfolio currently has close to 20% in emerging markets. But Rogers is also a bull on Europe, where he has put 60% of the portfolio.

Ivy Science & Technology A Fund

For many investors, the allure of small caps is the possibility of finding the next mega company. With that in mind, a tech fund can be a good way to play this.

But in today’s world, technology is quite diverse — including the Internet, mobile, biotech, cleantech and so on. Of course, that is actually the strength of the 

Ivy Science & Technology A Fund
(WSTAX). It looks not just for the typical tech operators, but also those companies that are trailblazing healthcare.

The strategy has definitely been a winner. For the past three years, the average return was almost 19%, including a 36.3% climb for the past year.

Some of the top holdings include Aspen Technology (AZPN), Cree (CREE) and Alliance Data Systems (ADS).

But is the big action really with small caps? Well, if you look at all the deals for 2013, those with market caps below $1 billion has an impressive average return of 18.16%. Here are the top five performers, with returns based off the offering price:

The two cloud operators  – Rally (RALY) and Tableau (DATA) — are hardly a surprise, but there was some diversity. Fairway (FWM) is an organic grocer, Artisan Partners (APAM) is a financial services company and ExOne (XONE) is top player in the hot 3D printing market.

On the flipside, though, there were some small caps that were big busts. Take a look:

Of course, that’s because small caps are often volatile. They can certainly have huge plunges even when the overall market are performing well .. and even if a company is in a hot space. After all, Marin Software is a cloud operator.

And while it’s hard to be disappointed with small caps, larger deals have done much better. So far this year, the average return has been 24.95%. In fact, Consider that there was only one deal fell below its offering price: Ply Gem (PGEM). And its return is still only a minor loss of 0.33%.

Here are the top five offerings:

In other words, investors who have focused on on IPOs with market caps over $1 billion have done the best. Heck, it’s been nearly a can’t-lose proposition.

Even if investors seem to be warming up to small caps, they are still looking for established companies that can produce decent growth rates — and are not afraid to bid them up aggressively.

Like many startups, the early days were fairly modest for the company (the launch was back in 2004).  The original office was only 800 square feet!

The co-founders of the company — William Eichhorn, Howard Niden and Patrick Allin — were former PWC consultants and they believed that the commercial construction industry was ripe for innovation. Keep in mind that the processes were often manual, inefficient and error prone.

But the co-founders did not rush things; instead, they spent nearly 5 months researching the industry. This involved talking to many general contractors, subcontractors, materials suppliers, architects, banks and insurance companies.

“We wanted to understand the industry and how the key processes worked,” said Patrick, who is the CEO of Textura. “After this, we realized there was a big opportunity.”

Yet the first step was to apply for a patent. “We thought we had unique innovations,” said Patrick. “There were also few patents in the construction industry. So we drafted the patent ourselves.”

It turned out to be a very good move. “The process of writing a patent creates real discipline,” said Patrick.  ”It helped us focus on building better products for our customers.”

The result has been a full-featured management system, which helps with bidding, estimating, pre-qualification, contracting, project management, invoicing and payment processing. And yes, Textura did not stop with the patents. The company now has 40 issued and 52 pending patents in its portfolio.

As should be no surprise, Textura has been growing at a rapid clip. From 2010 to 2012, revenues surged from $6 million to $21.7 million. Since inception, the platform has managed over 13,000 projects, totaling over $125 billion.

A big driver has certainly been Textura’s innovative offerings. But the company also has a powerful go-to-market strategy. Since the product relies on collaboration, there has been a network-effects to the business. Consider that a typical project has 40 participants.

Something else: Textura does not even have a traditional direct sales force. Rather, the company distributes its products through its own client services organization. “The people who sell the product are the same people who implement and support it,” said Patrick. “It’s an approach that has been popular with owners and GCs.”

Going forward, Textura’s opportunity looks bright. The global market for commercial construction is about $7 trillion per year. And so far, Textura has only scratched the surface.

According to Patrick: “The revenue opportunities are in the billions and billions.”

As should be no surprise, the hard part has been the negotiations with the mega recording labels. But the buzz is that Apple just snagged a deal with Warner Music Group and is close to getting one with Sony (SNE).

So, if everything goes according to plan, Apple may actually announce iRadio next week at its annual developer’s conference.

While the details are fuzzy, iRadio should be a contender. The service is expected to allow a user to personalize music based on genre or artist. Of course, this isn’t new. To differentiate itself, Apple will offer some interesting features. A cool one is the ability to rewind a song. Plus, iRadio will be free since the revenues will come from advertising.

No doubt, the online music landscape is already full of rivals. Some include mega operators like Google (GOOG) andAmazon (AMZN). Yet they may not suffer too much from iRadio since these companies have diverse businesses and can leverage their distribution strengths.

In the case of Amazon, for one, the giant company has a massive footprint of e-commerce customers as well as the Kindle platform. Google, on the other hand, has an online ecosystem along with its mobile operating system, Android.

With that in mind, it seems clear that the pure-play online music companies are likely to be the most vulnerable. Players like RDIO, Slacker and Rhapsody will have a tough time rising above the noise and even Spotify may struggle to get new customers — especially those willing to pay a monthly subscription fee.

Then there is Pandora (P), which is a direct competitor to iRadio. Sure, the company posted a solidfirst-quarter report, with revenues up 55% to $125.5 million and quarterly listening hours increasing by 35% to 4.18 billion. And it’s promising that about 80% of the growth was from mobile devices.

But Pandora has not been able to achieve profitability … despite the fact that it’s has been around for 13 years! Onerous licensing agreements with the recording industry — the same ones Apple struggled with — has been holding it back. In Q1, the fees accounted for a staggering 66% of sales.

To deal with this, Pandora has limited the listening time to 40 hours per month, which has indeed helped to move users over to paid subscriptions. But if Apple provides a free version, it seems plausible that users might just move over to iRadio … especially since, when it comes to radio, customers tend to be comfortable with occasional ads.

Besides, Apple has the advantage of its massive iOS platform and iTunes franchise, which has over 500 million customers. The company will also likely roll out commercials to generate interest in the new service.

In other words, iRadio could be a nightmare for Pandora’s shareholders. In fact, shares have already shed double-digits today … and the new Apple service hasn’t even been released yet!

But can she follow it up with results?

It’s true that Yahoo’s stock has been red hot, with a gain of 73% since Mayer came on board in mid-July 2012.  Yet the move is likely the result of the boost from the company’s Asian assets, Alibaba and Yahoo Japan.

Of course, Marissa wants to go beyond this — and a key is the $1.1 billion deal for Tumblr.  The microblogging site generates enormous amounts of traffic, has young users and yes, there is an interesting mobile play.

So will the Tumblr deal be what returns Yahoo to its former glory?  To see, I reached out to a variety of top people in tech:

Roman Stanek, the CEO of GoodData

“Tumblr marks Yahoo!’s ninth acquisition this year … There’s no secret behind this acquisition spree. Tumblr is Marrisa’s bet on the future and Yahoo!’s potential inroad into a younger, hipper demographic.  Are they betting on the right horse?  I believe social networks are generational. While Facebook Facebook might be the social network of today, Tumblr might very well be the network of the next generation.”

Marc Smookler, the Co-Founder of Written

“It’s a big bet on a young entrepreneur but also a bet on the way people communicate and how content will be delivered and consumed. Ultimately, it’s a smart move by Yahoo as it’s expected to drive Internet traffic and will bring a social media aspect to its overall business strategy. Facing stiff competition from Facebook and Google Google, advertisers should be more compelled to spend as more users engage in Yahoo services. The key for Marissa will be to keep Tumblr ‘separate’ from Yahoo and allow it to thrive and keep its culture and management teams intact.”

Josh Alexander, the CEO and Co-Founder of Toopher

“There are comparisons to the Facebook/Instagram deal.  But keep in mind that Facebook was built on sharing photos, and given Instagram’s popularity and growth, Facebook could not afford to let that opportunity grow outside of its brand. Plus, at that point in time, the Instagram purchase only cost 1% of Facebook’s market cap. The Yahoo/Tumblr acquisition does not offer the same sharp edges. While Yahoo was built for search, it has grown well beyond those boundaries; however, its identity is not a blogging and photo-sharing platform. As such, this acquisition seems beyond the scope of its wheelhouse. Further, I can appreciate the need for legacy players to buy innovation, but at 3.8% of its market cap, Tumblr is a significant investment to not own the market.”

James C. Foster, the CEO and Founder of Riskive

“Marissa Mayer is not Billy Beane. She has no intention to build up the Yahoo business via singles and doubles alone. While this is a proven model, think Southwest Airlines Southwest Airlines or Costco, this strategy requires a different approach and team architecture. Marissa has architected her team to be lean and mean to free up cash for this exact type of premeditated opportunity. She needs the big wins – she needs the eyes and wallets of the media – and quite honestly she needs the big at bats to get those wins. Tumblr will be the first in a series of big swings that will take at least nine months (or innings) to play out.”

Christian MacLean, the CEO and Co-Founder of Beaucoo

“In the past you’d see high growth/zero revenue companies get big acquisition offers and turn them down, only to see them get ridden over the falls as the next consumer platform takes off.  The challenge going forward will be keeping Tumblr’s young user base happy when Yahoo decides it needs to clean up the platform’s content (look at Reddit’s challenges) and monetize .  The switching cost is so low and it’s not hard to carry your friends with you to a new platform that doesn’t want to show you ads or apply a content policy.”

Tableau Software

Ahead of today’s initial public offering, Tableau boosted its transaction from a range of $23 to $26 to a range of $28 to $30, and also increased the number of shares issued from 7.2 million to 8.2 million.

Tableau ended up pricing the deal at $31 to raise $254 million, then investors bid shares up as much as 60% in the first few hours of Friday trading.

So why the excitement?

Tableau is one of the leaders in a red-hot market: Big Data. Amid the surge in mobile, social networking and the cloud, companies need better tools to make sense of the subsequent deluge of information. Tableau’s software not only makes it easier to access this data, but also to put it into understandable forms, such as graphs and charts.

Think of it as Excel on steroids.

Speaking of steroids, Tableau’s growth has been almost unnaturally robust, with revenues surging from $34.2 million in 2010 to $127.7 million in 2012. The company is even profitable, with net income coming to $1.4 million last year.

In all, Tableau currently boasts more than 10,900 customers, including top-notch organizations likeDeere (DE), Deloitte Touche Tohmatsu, Verizon (VZ) and DuPont (DD).

As a note, Tableau is just the second Big Data company to come public. The other was Splunk(SPLK), which hit the market about a year ago and has since gone on to post a gain of 163%.

Still, despite the clearly mouth-watering possibilities, investors should approach DATA stock with caution in the short-term. It’s typical for shares to cool down after such a hot opening — as was the case with Splunk, which shed about 25% within two months of its offering before finally snapping back.

One of the early investors in the cloud space is Emergence Capital.

“Ten years ago when we started our firm, we believed that the Internet would change everything in the way businesses use technology,” Emergence partner Kevin Spain said. As a result, Emergence invested in breakout companies like Salesforce.com (NYSE:CRM), SuccessFactors, Yammerand Box.

“There are things you can do in the cloud that are not possible with the traditional client-server approach,” Spain said. “For example, you can do things like collaboration. In fact, a company likeLinkedIn (NYSE:LNKD) could only be possible with the cloud.”

While Spain remains bullish on the industry, he still recognizes that some sectors are tougher to crack than others. One is enterprise resource planning, especially when it comes to bringing Global 2000 companies onboard. Oracle (NASDAQ:ORCL) and SAP (NYSE:SAP) still have a hammerlock on the market, and various government sectors like intelligence and defense have been tough to sell into.

Despite this, the market potential is still enormous — and there should be numerous opportunities for investors. Spain discusses this more at length, expounding upon M&A and public offerings for cloud companies, in the video interview below.

No doubt, the growth ramp has been substantial. From 2010 to 2012, revenues soared from $23 million to $96 million.

I had a chance to talk to the company’s CEO, Mark Floyd. He certainly has a great background, leading companies like SafeNet and Entrisphere. He was also a venture capitalist at both Sevin Rosen Ventures and El Dorado Ventures.

Here’s what he had to say:

Q: Since the telecom implosion a decade ago, there has been little investment in the equipment space. That’s been a benefit for Cyan?

A: We do not have the legacy problems of companies like Alcatel-Lucent . This gives us a significant advantage in terms of innovation.

But it has not been easy. Cyan was started five years ago when there was no interest in funding companies like ours. But the timing turned out to be spot-on in terms of the market opportunity for the technology.

Q: A key is that the network was meant for voice not social networking, cloud apps, games and so on?

A: That’s right. The network has become too expensive to scale up by adding routers and equipment.

This is where Cyan comes in. We are focused on softwae defined networks (SDNs). This allows our system to be more flexible and open. The architecture is also much more simplified.

We think of ourselves as the VMware  of the network. VMware virtualized the data center, which resulted in huge gains. We plan to do the same with our systems and software. We look at this as a fantastic opportunity

Q: What about the business model?

A: For our Z-Series hardware, we recognize revenue when the product ships.

But then we have our Blue Planet software, which we sell on a subscription basis. This is available even if a customer does not buy our hardware.

In the coming years, we think Blue Planet can turn into a large business, with a strong base of recurring revenues.