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With renewed optimism over a sustained economic recovery and robust corporate earnings growth, the small-cap space is set to explode higher. In fact, the Russell 2000 Index outperformed the broad market index over the past month, gaining 3.7% versus 2.9% for the S&P 500 Index.

The FDA has granted the first full U.S. approval to a COVID-19 vaccine made by Pfizer (PFE - Free Report) and BioNTech that will help quash the ongoing surge in the Delta variant and lead to the continued reopening of the economy. Additionally, the U.S. economy returned to the pre-pandemic level with the GDP rising 6.6% annually in the second quarter, indicating a sustained recovery from the pandemic recession.

Rapid vaccinations, reopening of businesses and trillions of dollars of government stimulus spending continued to power consumer spending and resulted in robust growth. The International Monetary Fund recently raised its 2021 growth forecast from 4.6% to 7.0%, which marks the fastest U.S. growth pace since 1984.

Meanwhile, the Q2 earnings picture is very strong, with broad-based strength across all major sectors and the overall quarterly total on track to reach a new all-time record. Additionally, a dovish Fed added to the strength. Though the central bank will gradually begin tapering $120 billion in monthly bond purchases by the end of the year, it is in no hurry to raise interest rates. Lower rates will continue to fuel the economy, pushing up consumer spending.

As small-cap companies are more domestically tied, these are poised to outperform when the economy improves. These pint-sized stocks generate most of their revenues from the domestic market, making them great choices during an uptrend.

As such, we have presented four ETFs & stocks from the space that looks to outperform given that they have superior fundamentals. These funds have a Zacks Rank #1 (Strong Buy) or 2 (Buy) and are among the popular choices. For stocks, we have chosen the extra advantage of a Growth Score of B or better and double-digit earnings growth for the fiscal year.

Schwab U.S. Small-Cap ETF (SCHA - Free Report)

This product offers exposure to the 1858 small-cap stocks and tracks the Dow Jones U.S. Small-Cap Total Stock Market Index. It is widely spread across sectors with health care, industrials, financials, consumer discretionary and information technology having double-digit exposure each. The product has AUM of $16.6 billion and sees solid volume of more than 378,000 shares a day. It has an expense ratio of 0.04% and a Zacks ETF Rank #2. The ETF has surged 4.2% in a month.

Invesco KBW Regional Banking ETF (KBWR - Free Report)

This fund offers exposure to companies primarily engaged in U.S. regional banking activities and follows the KBW Nasdaq Regional Banking Index. Holding 51 stocks in its basket, it is a relatively less-popular and less-liquid option in the space, with AUM of $72.8 million and an average daily volume of 6,000 shares. It charges 35 bps in fees per year from investors and has a Zacks ETF Rank #2 with a High risk outlook. The ETF is up 3.9% in a month.

Vanguard S&P Small-Cap 600 ETF (VIOO - Free Report)

With AUM of $1.8 billion, the product tracks the S&P Small-Cap 600 Index and holds 605 stocks in its basket. It charges 10 bps in annual fees and trades in an average daily volume of 36,000 shares. Industrials, financials, consumer discretionary and information technology are the top four sectors with a double-digit allocation each. VIOO has gained 3.9% in a month and has a Zacks ETF Rank #2 with a Medium risk outlook.

SPDR S&P 600 Small Cap ETF (SLY - Free Report)
 
This fund tracks the S&P SmallCap 600 Index, holding 601 stocks in its portfolio. It is widely spread across sectors with financials, industrials, consumer discretionary, information technology and healthcare making up a double-digit exposure each. The ETF has been able to manage $1.8 billion in its asset base while trades in a lower volume of 53,000 shares a day on average. It charges 15 bps in annual fees and has gained 3.9% in a month. The product has a Zacks ETF Rank #2 with a Medium risk outlook.

Bluegreen Vacations Holding Corporation (BVH - Free Report)

This vacation ownership company markets and sells vacation ownership interests and manages resorts in leisure and urban destinations. The stock has gained 36.1% in a month and has a market cap of $503.1 million. It has an expected earnings growth rate of 172% for this year. Bluegreen Vacations has a Zacks Rank #1 and a Growth Score of B.

Cross Country Healthcare Inc. (CCRN - Free Report)

It is a national leader in providing innovative healthcare workforce solutions and staffing services. With a market cap of $826.6 million, the stock has an estimated earnings growth rate of 243.5% for this year. has a Zacks Rank #2 and a Growth Score of B. Shares of CCRN has jumped 30.5% in a month.

Euroseas Ltd. (ESEA - Free Report)

This ocean-going transportation services worldwide provider owns and operates containerships that transport dry and refrigerated containerized cargoes, including manufactured products and perishables. It has a market cap of $166.2 million and has gained about 30% in a month. Euroseas has an estimated earnings growth rate of 824.1% for this year. It has a Zacks Rank #2 and a Growth Score of A.

Marchex Inc. (MCHX - Free Report)

This company is a leading mobile and online advertising company that drives millions of consumers to connect with businesses over the phone delivers the most quality phone calls in the industry and provides in-depth analysis of those phone calls. With a market cap of $136.7 million, it has an estimated earnings growth rate of 42.9% for this year and has risen 29.9% in a month. The stock Zacks Rank #2 and a VGM Score of B.