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Historically, the biggest driver of the small cap premium was “migration” i.e., a subset of small stocks earning extreme positive returns as they become large stocks. However, migration rates between small and large stocks have declined in the US. Small companies that would have grown to become successful large caps are either staying private, getting acquired by larger companies, or are entering public markets when they are already large caps. As a result, only the very worst companies are left in the small cap space. Investors should avoid a structural passive allocation to US small cap indices.