Market sentiments turned extremely bullish with the major indices hitting new highs after a nasty trading spell in August. Though the S&P 500 index breached the 2,500 milestone, the Russell 2000 index is easily outperforming with 6.4% gains in a month.

The returns were mainly driven by hopes of a tax reform, which is expected by the end of the year. If Congress approves the corporate tax rate cut from 35% to 15% as President Trump has proposed, small caps with a median effective tax rate of 31.9% will be the biggest beneficiaries. Additionally, lofty large-cap valuation, North Korea tension and chances of an end to the cheap monetary policy era across the globe have added to the strength in small-cap stocks.

Further, growth in the U.S. economy appears solid courtesy of an impressive labor market, increase in wages, increasing consumer spending and high consumer confidence. Against such a backdrop, small-cap stocks are the biggest beneficiaries as these are closely tied to the U.S. economy and do not have much exposure to the international market. These pint-sized stocks generate most of their revenues from the domestic market and generally outperform on improving American economic health.

Moreover, the rise in U.S. dollar and the prospect of further rate hikes will continue to give a boost to the pint-sized stocks. Notably, these stocks are free from the clutches of any political malaise like the political grid in Washington or a strong greenback.

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

Best ETFs

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

Guggenheim S&P SmallCap 600 Pure Value ETF (RZV - Free Report)

This fund provides pure exposure to the small-cap value segment of the U.S. equity market by tracking the S&P SmallCap 600 Pure Value Index.

Zacks ETF Rank: #3
AUM: $169.5 million
Expense Ratio: 0.35%
One-Month Return: 10.6%

PowerShares S&P SmallCap Industrials Portfolio (PSCI - Free Report)

This product follows the S&P SmallCap 600 Capped Industrials Index, which measures the performance of the companies engaged in the business of providing industrial products and services, including engineering, heavy machinery, construction, electrical equipment, aerospace and defense and general manufacturing.

Zacks ETF Rank: #2
AUM: $93 million
Expense Ratio: 0.29%
One-Month Return: 9%

iShares Micro-Cap ETF (IWC - Free Report) 

This fund provides exposure to micro-cap stocks by tracking the Russell Microcap Index.

Zacks ETF Rank: #3
AUM: $819.1 million
Expense Ratio: 0.60%
One-Month Return: 8.3%

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

This fund provides a slightly active choice as it uses the AlphaDEX methodology to select small-cap stocks.

Zacks ETF Rank: #2
AUM: $125.4 million
Expense Ratio: 0.70%
One-Month Return: 7.1%

WisdomTree SmallCap Earnings ETF (EES - Free Report)

This fund targets earnings-generating small-cap companies by tracking the WisdomTree SmallCap Earnings Index.

Zacks ETF Rank: #3
AUM: $501.1 million
Expense Ratio: 0.38%
One-Month Return: 6.8%

Best Stocks

We have used the Zacks stock screener to find out the best-performing stocks in the small-cap space and then narrowed down the list considering a Zacks Rank #1 or 2 and a Growth Style Score of ‘B’ or better.

The Growth Style Score analyzes the growth prospects of a company following a thorough analysis of the income statement, balance sheet and cash flow statement that evaluate its financial health and the sustainability of its growth trajectory. The results show that stocks with a Growth Style Score of A or B when combined with a Zacks Rank #1 or 2 offer the best upside potential.

Fusion Telecommunications International Inc. (FSNN - Free Report)

This New York-based company is a provider of VoIP (Voice Over Internet Protocol) and other Internet services to, from, in and between emerging markets in Asia, the Middle East, Africa, the Caribbean and Latin America.

Zacks Rank: #2
Growth Style Score: A
Market Cap: $69.32 million
One-Month Return: 100%

Sterling Construction Company Inc. (STRL - Free Report)

This Texas-based holding company operates as a heavy civil construction company in the home state, Utah, Nevada, Colorado, Arizona, California, Hawaii, and other states.

Zacks Rank: #1
Growth Style Score: A
Market Cap: $398.69 million
One-Month Return: 49.4%

Abercrombie & Fitch Co. (ANF - Free Report)

This Ohio-based company is principally engaged in the purchase, distribution and sale of men's, women's and kids' casual apparel.

Zacks Rank: #1
Growth Style Score: A
Market Cap: $969.56 million
One-Month Return: 44.9%

Turtle Beach Corporation (HEAR - Free Report)

This California-based audio technology company develops, commercializes, and markets a range of products under the Turtle Beach and HyperSound brands in North America, the United Kingdom, Europe, and internationally.

Zacks Rank: #2
Growth Style Score: A
Market Cap: $37.53 million
One-Month Return: 42.4%

H&E Equipment Services Inc. (HEES - Free Report)

This Louisiana-based integrated equipment services company rents, sells, and provides parts and service support for hi-lift or aerial work platform equipment, cranes, earthmoving equipment, and industrial lift trucks.

Zacks Rank: #1
Growth Style Score: A
Market Cap: $910.97 million
One-Month Return: 31%