Passive investment vehicles, promoted for diversification benefits, also fall short of such claims. During the August downturn, the correlation in index stock movement spiked and was “very high” according to David Pope, managing director of quantitative research at S&P Capital IQ. Mr. Xiong of Morningstar says that index stocks — even apart from the correction — tend to move together. “We clearly see trading commonality,” Mr. Xiong said. With higher correlation, “diversification benefits decline,” he added.

The rise of passive investing in the current bull market has most distorted the valuation of small- and midcap stocks, some experts maintain. Frank Gannon, co-chief investment officer at Royce & Associates, says that every market cycle is dominated by specific and historically differentiated factors.

The two most significant factors in the current market cycle, he says, have been the Fed’s quantitative easing and the growth of passive investing. These have worked together to benefit weaker companies that are often laden with debt and bereft of earnings. Currently, roughly one-third of all the companies in the Russell 2000, are not earning any money, the highest percentage of non-earners in the history of the index, according to Mr. Gannon. So on one hand, quantitative easing has helped the weakest companies refinance debt at lower rates. On the other, passive investing has lifted the share prices of the weak along with the strong. “The growth of passive investing in the small-cap space has supported the non-earners in indexes like the Russell 2000,” Mr. Gannon said.

Asked to illustrate overvaluation with specific pairs of index and non-index stocks, Mr. Frank, the portfolio manger, cited Sovran Self Storage and Public Storage. Both are in the self-storage business, which has been flourishing. Public Storage, which is in the S.&P. 500, trades at a multiple of 36.9 times trailing 12-month earnings. Sovran, not in the index, trades at 31.7 times trailing earnings.

Premium index valuation is also illustrated by comparison of the freight haulers J.B. Hunt Transport Services and Swift Transportation, according to Mr. Frank. J.B. Hunt, which is in the S.&P. 500, trades at 20.6 times trailing 12-month earnings. Swift carries a multiple of just under 11. Price-to-book value for J.B. Hunt is at a ratio of 6.2 to 1. For Swift, it is just under 3.8 to 1.

David Blitzer, chairman of the index committee at S&P Dow Jones, said that index inclusion “raises the profile” of a company, which tends to increase valuations in several ways. Stock mutual funds and E.T.F.s held by long-term investors own about 12 percent of the shares of each stock in the S.&P. 500, he said. Inclusion therefore reduces the supply of available shares, putting upward pressure on price, he added. Another factor, he said, is that “an index is a good place to look for takeover candidates” for mergers and acquisitions, noting that “about 10 to 15 stocks within the S.&P. 500 are taken over each year.”

Investors who want to avoid exclusive exposure to the premium value stocks of the S.&P. 500 and Russell 2000 do have other choices. Vanguard, for example, offers the Total Stock Market E.T.F. which tracks a broader stock market universe — a total of 4,000 large-cap, midcap and microcap stocks in the CRSP US Total Market index. The Vanguard Total Stock Market mutual fund also tracks that index, which represents nearly all United States stocks and diversifies market exposure. Vanguard spokesmen did not respond to requests for comment.