2 rising small caps set to beat the FTSE 100

While outperforming the FTSE 100 may sound less attractive given its high returns of recent months, beating the UK's main index could still be a worthwhile goal. The outlook for the index remains relatively uncertain and seeking to generate a return in excess of tracker funds which follow the FTSE 100 may be a shrewd move. With that in mind, here are two shares which have already beaten the wider index since the start of the year. More outperformance could lie ahead.

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Improving outlook

Reporting on Friday was radiation detection technology company Kromek(LSE: KMK). Its shares increased in price by over 8% following the update, which shows that investor sentiment continues to improve. This takes the company's gain in 2017 to around 29% versus just 1.5% for the FTSE 100.

Kromek's update stated that it is making good progress on the delivery of new orders won over the past two years. Due to this, it is continuing to trade in line with expectations. Its products have gained traction in all of its business segments from the increasing adoption of CZT-based technology and other products. More customer wins are expected in future, with Kromek anticipating a step change in revenue in the new financial year.

In fact, the company is expected to report a narrowing of the losses of recent years. Following a pre-tax loss of £4.1m in 2016, it is due to post a pre-tax loss of £3.7m in financial year 2017. This is then expected to narrow to a loss of £2.1m in financial year 2018. Given it has taken part in a successful fundraising and investor sentiment seems to be on the up, now could be the right time to buy a slice of the business.

Recovery potential

Also offering FTSE 100-beating performance is Judges Scientific(LSE: JDG). The scientific instrument business has experienced a difficult period of late, with its bottom line being highly volatile and causing its share price to disappoint somewhat. However, since the start of the year there has been an improvement in investor sentiment, with the company's shares rising by 20% year-to-date.

Looking ahead, more growth could be on the horizon. Judges Scientific is expected to deliver a rise in its bottom line of 24% in the current year, followed by additional growth of 12% next year. Since investors are understandably somewhat cautious about its prospects owing to its disappointing profit falls in recent years, the company has a relatively wide margin of safety at the present time. It trades on a price-to-earnings growth (PEG) ratio of just 1.1, which indicates that it offers a favourable risk/reward ratio.

Of course, there is no guarantee that Judges Scientific will deliver on its upbeat forecasts. However, the company seems to have turned a corner and now has the right strategy through which to improve on its rising share price.

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Peter Stephens owns shares of Judges Scientific. The Motley Fool UK has recommended Judges Scientific. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.