We Asked a $4.5B Quant Manager Why the S&P 500 Is Just 46 Stocks — and Why Small Caps Aren't Dead

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May 8, 2026

Elena Khoziaeva, Co‑CIO and portfolio manager at Bridgeway Capital, specializes in quantitative multi‑factor investing. She explains why about 46 stocks effectively drive the S&P 500, how small-cap research is distorted by IPOs and longer private lifespans, and how thoughtful factor construction, adjustments for intangibles, and AI-assisted research can create active opportunities amid market concentration.

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INSIGHT

Small Cap Universe Has Structurally Changed

The small-cap universe is different, not just worse: more high-quality firms stay private, lowering measured quality in public small-cap indices.
That structural shift reduces ultra-small entries and changes opportunity sets for managers.

INSIGHT

Adjust Value Weighting For Intangible Intensive Firms

High-intangible companies need different factor weights: de-emphasize traditional value and emphasize sentiment for intangible-intensive firms.
Bridgeway classifies industries by intangible intensity and tweaks value vs sentiment weightings accordingly.

ADVICE

Add Small Cap Value For Diversification

Consider allocating to small-cap value as a diversifier because it has recently outperformed and lowers correlation with large-cap growth.
Elena notes small-cap value returned ~14–15% year-to-date and complements core or growth allocations.

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Elena Khoziaeva, Co-Chief Investment Officer and Portfolio Manager at Bridgeway Capital Management, joins Excess Returns to discuss factor investing, small caps, value investing, market concentration, intangibles, passive investing, market neutral strategies, and the role of AI in quantitative investment research.

We cover how Bridgeway combines disciplined quantitative models with human judgment, why the S&P 500 may be less diversified than investors think, and how investors can think about diversification when mega-cap growth stocks dominate market returns.

Bridgeway Capital Management
https://bridgeway.com/

I Know What You Did Last Summer
https://bridgeway.com/perspectives/i-know-what-you-did-last-summer/

How Many Stocks Are Effectively in the S&P 500?
https://bridgeway.com/perspectives/how-many-stocks-are-effectively-in-the-sp500/

Topics Covered

Why quantitative investing still needs human judgment and skepticism
The difference between smart beta and true multi-factor portfolio construction
How Bridgeway combines value, quality, sentiment and risk controls
Why the size premium may depend on how small-cap stocks are defined
Why recently fallen large caps and IPOs can distort small-cap research
How the small-cap universe has changed as companies stay private longer
How intangible assets affect traditional value and quality metrics
Why value can work in bursts and why timing factor rotations is so difficult
How concentrated the S&P 500 has become using the HHI framework
Why passive investing may create opportunities for active small-cap managers
How market neutral strategies can help investors manage equity market volatility
How AI can help with data, text analysis and trading without replacing investment judgment

Timestamps

00:00 Why fewer than 50 stocks are driving S&P 500 returns
01:04 Bridgeway’s evidence-based investing approach
02:59 Why quantitative models need human judgment
07:52 Smart beta vs multi-factor investing
11:32 How Bridgeway builds multi-factor portfolios
16:08 Rethinking the size premium
20:31 Has the small-cap universe gotten worse?
23:49 How intangibles change value investing
28:05 Does value still work?
30:09 Why value returns can be episodic
33:11 Why factor investors need patience
35:22 How concentrated is the S&P 500?
40:29 Factor strategies as portfolio diversifiers
41:41 Passive investing and market structure
44:27 Managing volatility with market neutral strategies
49:40 How systematic managers update their models
55:02 How Bridgeway is using AI
01:00:03 Elena’s biggest lesson for investors