More investors are taking a passive approach to small caps. Should they?

We believe small caps span a wide range of characteristics and performance drivers that index funds merely average away but that experienced managers have the potential to exploit. In this report, we explore what we believe are common yet ultimately misguided assumptions about small caps, as well as their potential consequences for small-cap quality, growth and value investors seeking to generate attractive risk-adjusted returns.

This is the fifth installment in our series on the potential limitations and hidden costs of indexation. For more perspective, please see: The Fine Print of Indexation, The Limitations of Passive Investing to Achieve a Net-Zero Outcome, The Muddy Logic of Passive Commodity Investing, and The Pitfalls Of Investing in Factor Indices.

And for a closer look at why we believe the next small-cap cycle is gearing up, please read Small Caps: The Next Cycle Is Upon Us.