Elena Khoziaeva, Bridgeway

Elena Khoziaeva joined Bridgeway Capital Management in 1998 as partner number six. She still has the offer letter. Twenty five years on she is co-chief investment officer of the Houston firm, and she came on Behind the Ticker with a question for anyone holding a small cap value index fund: if you believe in the small size and value factors, why is your exposure to them so shallow? The index is a starting point, not a destination. The real question is whether someone can give you smaller and cheaper than the benchmark and stay there when the factors go out of favor.

The Firm Behind the Strategy

Bridgeway is worth understanding before the fund is. It donates half of firm profits to the Bridgeway Foundation, which funds work to prevent genocide and mass atrocities, and it caps the internal salary ratio at seven to one. Founder John Montgomery wrote both into the business plan on day one.

What that buys on the investment side is a research culture with the defensiveness taken out. Elena's line is that Bridgeway is competitive with the world but not competitive with each other. When a researcher presents internally, the expected posture is not a defense of the result but a question about what got missed. She treats intellectual humility as a model input rather than a poster on the wall. Research nobody is willing to attack is research that breaks later.

What Deeper Actually Means

BSVO is the Bridgeway Omni Small-Cap Value ETF, listed on the Nasdaq at 45 basis points and actively managed. The predecessor mutual fund launched in 2010 and converted in 2023, so the strategy is a good deal older than the wrapper.

The build starts with the smallest 40 percent of the US equity market, deciles seven through ten, which on a purchase basis puts the average name under $3 billion. Then come the sidestep screens, which strip out negative momentum and pending stock situations. These exist to solve the problem deep value creates for itself. Screen hard enough on cheapness and you will buy things that are cheap because they are dying. The screens take the fallen knives back out.

Only then does the valuation work run, and it runs on multiple metrics rather than one. That choice matters more than it sounds like it should. A single ratio hands you the cheapest names and nothing else. A combination measure pulls in profitability and quality as a byproduct, which is why Elena describes the portfolio as carrying a quality tilt she never explicitly asked for.

Six Hundred Names on Purpose

The strategy holds close to 600 stocks, several times what most small cap value peers carry. Elena's answer to why is that this is not a stock picking product. It is asset class exposure with deeper factor loading, not a concentrated bet on 40 favorites. The portfolio is cap weighted with position limits at the top, the top 10 holdings come to roughly 8 percent, it rebalances monthly, and turnover runs 25 to 30 percent.

The number that makes the case concrete is correlation. Elena puts the strategy's monthly correlation to the S&P 500 since inception at 79, against 83 for the Russell 2000 Value. That gap is the argument. For an advisor whose large cap sleeve has quietly turned into a concentrated position in a handful of mega caps, deeper factor exposure does more diversification work than the standard index would.

The Sector Tilts Are an Output

There are two ways to run a value screen. Compare within sectors, energy against energy and financials against financials, and you get something close to sector neutral. Run the measure across the whole investable universe and it sends you wherever value actually is. Bridgeway does the second, and that is the entire explanation for the tilts.

Financials run overweight and banks are the largest industry group because that is where the screen keeps landing. Healthcare runs light, which Elena treats as timing rather than a view. After the sector's run in 2025 it is not screening cheap, and she expects it back when it does. Nobody at the firm has a house call on banks.

The Spring

Elena ballparks the small cap value multiple in the 14 to 15 range against large cap growth in the 30s. The measure she watches more closely is the median book to market ratio of the Russell 2000 Value against the S&P 500. The long run norm sits around 1.6. At the end of last year it was 2.8.

Her metaphor is a spring, and the point of it is speed rather than size. The tighter the spring, the more powerful the release. She points at the first quarter of 2026, when large growth fell 10 percent while small value rose 5 percent, a 15 point spread inside a single quarter, and notes that the space can run 5 percent in a day.

Which leads to the advice she gives without hedging: do not try to time it. If you believe in the allocation, hold it and add systematically. The turnaround here is fast enough that anyone trading in and out will be on the wrong side of both moves. She stops short of calling small cap value a core holding, since sizing depends on risk tolerance. Her argument is only that there should be a line for it at all.

Key Takeaways

• Elena's argument is not that small cap value is underowned, but that most exposure to it is shallow. The strategy targets smaller size and deeper value than the benchmark and holds that posture when both factors underperform.
• The process screens the smallest 40 percent of the US market, strips out fallen knives with negative momentum and pending stock screens, then applies a multi metric valuation measure that produces a quality tilt as a byproduct.
• Close to 600 holdings is deliberate. The fund is asset class exposure rather than a concentrated bet: cap weighted with position caps, roughly 8 percent in the top 10, rebalanced monthly at 25 to 30 percent turnover.
• Running the value measure across the universe instead of within sectors is what produces the financials overweight and the light healthcare weight. The tilts are an output of the process, not a macro call.
• Elena puts the median book to market ratio of the Russell 2000 Value to the S&P 500 at 2.8 at the end of last year against a long run norm near 1.6, and argues the reversal comes fast enough that trying to time it is a losing exercise.

Listen to the full conversation on Spotify, Apple Podcasts, or YouTube.