Part of the cause for the underweighting can be traced to research published by Rolf Banz, a University of Chicago researcher.
Studying market returns from 1931 through 1974, Banz
found that small stocks outperformed large and mid-cap stocks by wide margins.
Startled by the findings, institutions began giving new weight to small stocks.
Mutual fund companies rolled out a raft of new small-cap funds.
But even before Banz
findings, the so-called small-cap effect began to disappear, and mid caps moved into the lead.