According to the Bank of America, small caps are more passively managed than their mid-cap and large-cap peers. However, a passive approach might not be the best for maximum returns, opines Neuberger Berman. “Index funds are not designed to capitalise on the extraordinary variations across performance drivers within the small-caps universe,” Raheel Siddiqui, Senior Investment Strategist, wrote in the white paper “Small Caps: To Index or Not To Index”.

The white paper explores “common yet ultimately misguided assumptions” about small caps, and the potential consequences for investors.

“Passive investors must accept the averaging of significant disparities across the small-cap landscape, whereas experienced active managers, in our view, have the potential to exploit them,” added Siddiqui.

Read the full white paper here.