Amid heightened volatility and uncertainty, small cap stocks, as measured by the Russell 2000 Index, are shining and easily outperforming their large-cap counterparts. In fact, the benchmark closed at a record high for consecutive three days and registered its third week of gains. This is in contrast to the large cap brethren - S&P 500 and Dow Jones – that saw the third weekly decline in the past four weeks.

The rally made the Russell 2000 the first index to reach a record high, following the stock market’s first 10% correction in two years in February. The index has gained 11.1% since its Feb 8 low and 5.9% so far this year.

The outperformance was partly driven by U.S. tax overhaul, which includes the steep tax cuts benefiting the small-cap stocks as they pay higher rates than large-cap companies. Recent trade tensions and Trump’s protectionist trade stance also boosted small cap stocks, which are closely tied to the U.S. economy and do not have much exposure to the international market Notably, these pint-sized stocks are considered safer and better plays if a political issue or economic turmoil creeps into the picture. Further, the strength in dollar, which makes U.S. goods more expensive overseas, also supported the small cap surge.

Moreover, an encouraging domestic economic trend backs their momentum. The U.S. economy has entered its second-longest expansion phase since 1785, thanks to higher consumer spending, rising consumer confidence, low borrowing cost, growing wages and solid hiring.

The trend is likely to continue given that the growing inflationary pressure is building up the case for aggressive rate hikes, pushing dollar higher. According to CME, there is 51% chance of four interest rates hike this year. Though the trade tensions between China and the United States have eased after they agreed to drop their tariff threats, looming U.S. sanctions against major oil producer Iran has intensified the geopolitical risk.

Added to the bullishness in the space is small-cap earnings growth, which has outpaced that of bigger names. According to Thomson Reuters, first-quarter earnings growth for Russell 2000 companies is estimated to be 33.8%, while earnings for the S&P 500 companies increased 26.2% from a year ago.

Given this, there have been winners in several corners of the small cap space. Below we have presented  ETFs & stocks that have easily crushed the Russell 2000 index this year and are likely to continue their strong performance.

Best ETFs

All these funds have a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), suggesting room for more upside.

PowerShares S&P SmallCap Healthcare Fund (PSCH - Free Report)

This ETF targets the healthcare sector and tracks the S&P SmallCap 600 Capped Health Care Index.

Zacks ETF Rank: #2
AUM: $567.2 million
Expense Ratio: 0.29%
YTD Return: 26.8%

PowerShares S&P SmallCap Energy Fund (PSCE - Free Report)

This fund offers exposure to the small-cap segment of the energy sector by tracking the S&P Small Cap 600 Capped Energy Index.

Zacks Rank: #3
AUM: $77.3 million
Expense Ratio: 0.29%
YTD Return: 18.4%

ALPS Medical Breakthroughs ETF (SBIO - Free Report)

This small cap centric fund targets companies with one or more drugs in Phase II or Phase III FDA clinical trials and follows the Poliwogg Medical Breakthroughs Index.

Zacks ETF Rank: #3
AUM: $192.1 million
Expense Ratio: 0.50%
YTD Return: 13.9%

First Trust Small Cap Growth AlphaDEX Fund (FYC - Free Report)

This fund follows the Nasdaq AlphaDEX Small Cap Growth Index, which uses the AlphaDEX methodology to select the stock from the Nasdaq US 700 Small Cap Growth Index.

Zacks ETF Rank: #3
AUM: $222.6 million
Expense Ratio: 0.70%
YTD Return: 10.3%

Best Stocks

Turtle Beach Corporation (HEAR - Free Report)

This California-based audio technology company provides various gaming headset solutions for various platforms, including video game and entertainment consoles, handheld consoles, personal computers, and mobile and tablet devices under the Turtle Beach brand.

Zacks Rank: #1
Growth Score: A
Market Cap: $218.5 million
YTD Return: 781.3%

Profire Energy Inc. (PFIE - Free Report)

This Utah-based oilfield technology company provides burner- and chemical-management products and services for the oil and gas industry primarily in the United States and Canada.

Zacks Rank: #2
Growth Score: B
Market Cap: $229.4 million
YTD Return: 114.8%

ChemoCentryx, Inc. (CCXI - Free Report)

This California-based biopharmaceutical company is focused on discovering, developing and commercializing orally-administered therapeutics to treat autoimmune diseases, inflammatory disorders and cancer (read: Why These Small Cap Biotech ETFs are Soaring).

Zacks Rank: #1
Growth Score: B
Market Cap: $604.05 million
YTD Return: 106.5%

Town Sports International Holdings, Inc. (CLUB - Free Report)

This Florida-based health club company is the largest in the Northeastern United States. It owns and operates the Sports Clubs Network of clubs, which includes New York Sports Clubs, Boston Sports Clubs, Washington Sports Clubs and Philadelphia Sports Clubs.

Zacks Rank: #2
Growth Score: A
Market Cap: $289.73 million
YTD Return: 91.9%