I'm guessing that taking only from the top 1/4 or 1/2 by market cap and also positive ROE would take care of that.

Makes sense. I am certain there are plenty of decent firms in there.

I see three main issues regarding jumping heavily into the small end:

* The companies are not so hot any more on average, as mentioned. Judicious selection should help that.
* The construction of the Russell 2000 index is hazardous to your health, don't invest in it, at least not any time near the middle of the year. It is FAR too easy to front run the reconstitution, and the drag has been estimated to be huge, around 2.2%/year. Judicious selection should avoid that problem.
* Valuation levels no longer seem to get a break. Judicious selection might not help. There are LOTS of people looking for growing firms about to rise up into the R1000 or S&P500, so they tend to get bid up enough that you you have to be better than the pack at picking the winners of the race. The ones that aren't on that trajectory are slower growing and likely to remain at second-tier valuation levels.

Jim