Warren Buffett recommends low-cost index funds for most people — but BofA says t...

Warren Buffett likes index funds — particularly those that follow the S&P 500.

“In my view, for most people, the best thing is to do is owning the S&P 500 index fund,” he once said.

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But that strategy may not be optimal in the current market environment according to Bank of America’s head of U.S. equity and quantitative strategy Savita Subramanian.

“The worst thing to hold is the S&P 500 wholesale,” she tells CNBC.

Although following the benchmark index has worked well over the past decade, Subramanian points out that the current environment is different.

“The S&P 500 right now is expensive — it's super crowded. It's the most crowded ticker in the world if you think about it from an index perspective.”

She still likes Buffett’s approach for the long-term. But adds that investors have different time horizons.

“If you've got a 10-year time horizon, hold the S&P 500 and watch and wait,” she recommends. "But if you're thinking about what's going to happen between now and let's say the next 12 months, I don't think the bottom is in."

Of course, that doesn’t mean you should completely bail on stocks. Here’s a look at what Subramanian still likes in today’s market.

Small caps

While Subramanian doesn’t find the large cap-focused S&P 500 attractive at the moment, she sees opportunity in the small-cap space.

“If you think about the small-cap benchmark, it is pricing in a hard landing, deep, deep recession,” she says.

“We think they’re going to be okay. We think we’re going to get a recession, but it’s going to be a softer landing.”