Unlock the potential of the smaller companies universe
After years of underperformance, valuations for European small caps remain relatively attractive compared to large caps and other regions. The sector lends itself to active investing, and even more so to active systematic investing. Quoniam’s systematic investment approach offers distinct advantages in identifying and capitalising on opportunities in the small cap space.
Mark Frielinghaus, CFA
Principal Investment Strategist Equities
Key takeaways
-
Proprietary models analyse around 3,000 European small cap companies every day and uncover hidden value potential.
-
Our data-driven investment approach objectively evaluates each stock based on over 60 proven metrics and systematically identifies alpha drivers using machine learning.
-
The broadly diversified portfolio is efficiently implemented via Quoniam’s in-house trading desk, enabling targeted positioning with controlled risk.
Uncovering hidden value
A key opportunity in the small-cap space is that they are often under-researched. It is not economically or commercially viable to devote an army of analysts to these stocks. Many of these stocks receive limited attention from traditional analysts, creating a landscape rich in potential.
Our data-driven, quantitative approach is designed to systematically exploit large universes, detecting undercurrents in the vast ocean of data. Proprietary models analyse 3,000 European companies every day allowing us to uncover hidden value in small cap stocks. The benefit to investors is not only more opportunities, but also a high level of diversification and lower tracking error.
All relevant fund data for the Quoniam managed QFS SICAV – European Small Cap can be found here:
Objective alpha
We not only cover the breadth of the small cap market but analyse each stock across over 60 metrics that are empirically shown to affect alpha. The foundation is proven performance drivers: value, quality and sentiment, complemented by a machine learning model. Our data-driven approach makes our evaluation objective, without the risk of subjective decisions based on management relationships or the appeal of company stories.
Historical data also shows that not only is the small cap market truly inefficient, but that our model is able to capture the hidden value that exists relative to the more efficient mid and large cap segments.
Figure 1: Quoniam’s forecast model captures more alpha for small caps
Active diversification beyond the benchmark
Portfolio implementation is another value-added element of Quoniam’s small cap strategy. By capturing the entire investment universe, we discover ample opportunities and include more than 200 single holdings in the portfolio. The active share regularly exceeds 75% relative to the benchmark, highlighting the active style of the strategy, which selects securities both in and outside the reference index. Greater diversification is a key to success in small caps, where idiosyncratic risks tend to be higher given that business models are less proven, external financing is less secure and business models are often mono-strategies.
Precision in trading
We not only identify attractive small cap opportunities, but also ensure that these opportunities are executed with precision, adding value through both superior stock selection and cost-efficient portfolio implementation.
A key differentiator for Quoniam is our fully integrated in-house trading desk, which is essential for cost-effective and seamless portfolio implementation. Our trading desk ensures precise execution by utilising multiple venues, applying strict pre- and post-trade of cost analysis, and a focus on minimising transaction costs. This capability allows us to efficiently bring portfolios to life, even in less liquid small cap stocks where trading costs can quickly erode returns without the right expertise.
Over the past three years, Quoniam has achieved a minimal implementation shortfall of just 10 basis points in developed market equities in total, for mid cap stocks (market caps between USD 2.5 bn and USD 10 bn), 25 basis points, while for small caps (under USD 2.5 bn), 48 basis points. In each of these categories, we traded better than expected shortfall and therefore achieved trading alpha ranging from 2.6 for all developed markets and 5.5 bps for small caps. These competitive results demonstrate our ability to balance the potential for higher returns in less liquid stocks with the need for cost-efficient trading.
Source: Virtu Financials Global Transaction Cost Review. 3 years ending 30 June 2026. Trades in Global Developed Markets. The peer group universe from Virtu covers approx. 180 entities, including 38 of the 50 largest global investment firms, and >10trln trading volume p.a..
Attractive historical performance
Quoniam’s systematic approach to small cap investing is a better way of capturing alpha. Since the inception of our strategy, we have consistently delivered second quartile levels of return with a lower risk profile than the peer group leading to an exceptionally high information ratio. In addition, the maximum drawdown remains relatively low, underlining the robustness of our approach (Source: eVestment, June 2026).
