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Small caps hit a record, leaving the S&P in the dust

Talk about making a small fortune.

The small-cap Russell 2000 hit a record high Thursday, and is seriously outperforming its large-cap cousin; the Russell is up 6.6 percent this year, versus a mere 3 percent rise for the S&P 500.

For Dennis Davitt of Harvest Volatility Advisors and Gina Sanchez of Chantico Global, that represents a growing investor predilection for growth stocks.

"The small caps are all about growth," said Davitt. "People are realizing that the Fed is more dovish than they had originally thought. … If you continue to have those low interest rates, U.S.-specific growth stocks are the way to go, and they all live in the Russell 2000.

Indeed, since the S&P contains larger companies, it contains more slow-growing multinationals than the Russell 2000. If the US economy continues to grow, especially in relation to the rest of the world, it makes sense that the Russell would outperform.

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Sanchez, who advises clients on global asset allocation, says that touchy international situations are another point in small caps' favor.

"Anything that happens globally, like what happens in Greece, is not going to be reflected in the small caps, which makes them attractive relative to global stocks," Sanchez said.

A final factor that may be boosting the prospects for the Russell? The recent spate of mergers and acquisitions.

"We've also seen significant merger activity in the small-cap market, which is going to put more of a bid into small caps," Sanchez said. That "really isn't fundamentally based, and so I do think you need to be careful of that."

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