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Office Hours: Why Investors Should Think Twice About Indexing Small Cap Allocations


Index-based strategies have continued to gain popularity. Assets tracking the three most widely-followed U.S. small cap index families exceed $400 billion.* The mechanical nature of indexing comes with some benefits for investors, but it can also mean limitations and costs that are not captured in expense ratios.

In this edition of Office Hours, Avantis’ Chief Investment Strategist Philip McInnis and Senior Investment Director Jeromey Thornton examine some of the ways in which index approaches can fall short for investors and propose how a systematic approach to managing small cap strategies can deliver many of the same benefits of indexing while removing artificial constraints.

*Source: Avantis Investors, data from Morningstar as of July 27, 2022.

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