Small-cap stocks, which were lagging in the first half of the year, staged a nice comeback over the past three months on talks of tax reform. The optimism intensified after the House and Senate passed the tax bill, though the version of the both the bills differ on some fronts.

With the House and Senate in negotiation on the consolidated bill, Republicans are now closer to finalize the $1.5-trillion tax reform by the end of the year. When it comes into effect, small caps will be the biggest beneficiaries relative to big companies. This is because companies on the small-cap index Russell 2000 pay a median effective tax rate of 31.9% while the larger, multi-national companies on the S&P 500 pay a median effective tax rate of 28%, according to the Thomson Reuters data. The median tax rate for the 30 mega-cap stocks on the Dow Jones Industrial Average is even low at 23.8%.

Additionally, the strengthening economy is providing a boost to the small-cap stocks that are closely tied to the U.S. economy and do not have much exposure to the international market. Notably, the economy expanded at the fastest clip in three years in best back-to-back quarters with at least 3% GDP growth and unemployment at the lowest level of 4.1% since December 2000. Americans are highly optimistic about the economy with consumer confidence climbed to the highest level in 17 years.

The pint-sized stocks generate most of their revenues from the domestic market and generally outperform on improving American economic health. These are also free from the clutches of any political malaise.

Moreover, after hiking rates in December 2015 and December 2016, the Fed has raised interest rates two times this year and looks to hike rates again at its Dec 12-13 policy meeting. This indicates a stronger economy and propels small-cap stocks higher.

Given the bullish trend, investors are looking to tap the small cap space in the ETF form. The two ultra-popular ETFs — iShares Russell 2000 ETF (IWM – Free Report) and iShares Core S&P Small-Cap ETF (IJR – Free Report) — offer diversified exposure to the small-cap space and have a Zacks Rank #3 (Hold) with a Medium risk outlook. IWM has gained 6.9% over the past three months while IJR has returned a little more at 8.6%.