Investors rush to small caps in hunt for risk

Traders work on the floor of the New York Stock Exchange.
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Traders work on the floor of the New York Stock Exchange.

Demand for small-cap stocks is increasing relative to established large-cap names, a divergence that signals continued risk appetite among investors.

The Russell 2000 index hit a new all-time high of 1,212.82 on Tuesday for the eighth time this year, surpassing its previous high set on Feb. 28.

So far in 2014, the Russell is up 3.5 percent, compared with an increase of 1.4 percent for the S&P 500 and a decline of 1.3 percent for the Dow. The Nasdaq composite is currently leading the market, up 4.3 percent.

"Investors are coming down cap to find growth, and are willing to accept more risk to pay up for some of that growth," says Craig Johnson, technical market strategist at Piper Jaffray. On a "technical measured objective, the Russell 2000 could trade as high as 1,450." The index settled at 1,208.65 on Tuesday, up 2.74 percent, or its best daily gain in more than a year.

Small-cap leadership is usually considered a bullish sign, according to market professionals, as the sector is often viewed as a gauge for domestic expansion.

"Participation in the market is growing as some investors play catch up after missing last year's rally," says Johnson. "We have a long-standing bullish position, and expect the S&P 500 to reach 2,100 this year." His firm is overweight consumer cyclical, technology and health-care stocks.

Since the market closed at a more-than-three-month low on Feb. 3, the Russell 2000 is up 10 percent, outperforming the rest of the major indexes.

Dating back to 1978, the average deviation between the Russell and the Dow has been about 1.50 percent in the first two months of the year. In 2014, however, the Russell has outperformed the Dow by more than twice the historical average.

According to Dan Greenhaus of BTIG: "The differences between the Dow and S&P 500 always come down to weightings. In the case of the Dow, which favors high-priced stocks, the negative year-to-date performance is mostly due to companies such as 3M, Goldman Sachs and Chevron, which have overwhelmed the more positive performance among other names such as Caterpillar and Disney."

Here's a look at some of the stocks behind the surge in the Russell 2000.

Russell 2000

Ticker Company Last %Chg. YTD %Chg. Mkt. Cap ($MM)
ICPT Intercept Pharma. 435.43 5.15 537.00% 8,007
FURX Furiex Pharma. 94.15 -1.49 124.11% 991
ITMN InterMune 31.75 1.49 115.60% 2,807
INSY Insys Therapeutics 83.37 21.73 99.50% 1,472
PTCT PTC Therapeutics 33.86 4.57 99.50% 952
CTIC Cell Therapeutics 3.81 4.82 99.20% 543
FCEL FuelCell Energy 2.71 24.88 92.20% 513
GTAT GT Advanced Tech. 16.7 11.04 91.60% 2,022
NBIX Neurocrine Biosci. 17.82 6.9 90.80% 1,256
KPTI Karyopharm Thera. 41.67 6.68 81.80% 1,162
NLNK Newlink Genetics 38.41 -1.71 74.50% 1,005
RENT Rentrak Corporation 65.38 2.38 72.60% 773
HZNP Horizon Pharma 12.99 1.56 70.50% 842
PVA Penn Virginia 15.59 2.97 65.30% 990
RLYP Relypsa 40.3 3.1 61.80% 1,121
GEVA Synageva BioPharma 103.99 2.59 60.70% 3,116
RCPT Receptos 46.56 1.97 60.60% 989
SUNE SunEdison 20.89 11.83 60.10% 4,980
ARII American Railcar 72.94 3.86 59.40% 1,500
AUXL Auxilium Pharma. 32.01 3.88 54.40% 1,533

—By CNBC's Giovanny Moreano and Pradip Sigdyal. Follow Giovanny on Twitter: @giovannymoreano