Global Equities Enhanced: Finding the sweet spot between passive and active investing

With global equity markets highly efficient and fee pressure ever-present, many professional investors default to broad equity ETFs as core portfolio building blocks. However, this approach also comes with limitations—especially when it means paying for returns that often lag the benchmark after fees. Enhanced offers a compelling alternative: a disciplined, data-driven way to stay close to the benchmark while seeking incremental, consistent outperformance.

Let’s start with the basics. What are enhanced strategies, and how do they differ from active or passive investing?

Rocío: Enhanced strategies sit between the extremes. Investors get the discipline and diversification of passive investing, but with more intelligence behind the stock selection. Enhanced is about small, systematic tilts away from the benchmark—based on forward-looking signals. These tilts are designed to generate a little bit of extra return, without straying far from the benchmark.

So you’re not making big bets?

Rocío: Exactly. The tracking error is low—typically 0.5% to 1.5%. That’s very different from high-conviction active managers. But within that range, you can still outperform the benchmark if your models are strong. The goal is to deliver consistent, risk-adjusted alpha in a scalable way.

Many investors ask: if I’m already in a low-cost ETF, why should I pay more for an enhanced product?

Mark: It’s a fair question. The key is that pure passive never outperforms after fees—by definition. And it replicates the benchmark regardless of fundamentals and sentiment. You take everything, good and bad.

With an enhanced strategy, you pay a bit more, but you have a real chance of earning that back over time. Especially in global equities, where broad benchmarks are often cap-weighted and concentrated, even modest improvements in stock selection can make a meaningful difference.

What about risk? Some investors are cautious about straying from the benchmark—even slightly.

Rocío: That’s a very reasonable concern. But the strength of a systematic, model-based approach is that we can see all risk exposures simultaneously—across sectors, regions, styles, and individual securities—during portfolio construction. It’s not about reacting after the fact; the optimisation engine incorporates risk, return, and implementation costs all at once, allowing us to stay tightly aligned with the benchmark while allocating capital where it’s most effective.

We don’t take large directional bets or introduce unintended biases. Active weights are spread across hundreds of small positions, making the portfolio highly diversified and stable. And because tracking error is precisely controlled, investors always know the boundaries we’re operating within.

• What makes equities enhanced at Quoniam so risk-aware?
  • 
    Systematic portfolio optimisation
    We see all risk dimensions at once—style, sector, region, tracking error—within a unified framework.
  • 
    Precision position sizing
    No hidden bets: every position is calibrated for signal strength and portfolio impact.
  • 
    Controlled tracking error
    Tight risk bands keep the portfolio close to the benchmark—without missing opportunities to add value.
  • 
    Built-in risk monitoring
    Our models and constraints help avoid unintended exposures and ensure resilience, even in volatile markets.

You mentioned models. What’s behind the signal engine that drives the portfolio?

Mark: Our core is a multi-factor model, developed over more than 25 years. It uses over 60 alpha indicators that we group into 16 proprietary factors—things like value, sentiment and quality. Each signal has been tested for its economic rationale and persistency.

Since 2018, we’ve layered machine learning into the process of weighting the performance drivers, also known as factors. It helps us refine the forecast accuracy, especially in identifying where our traditional models may be over- or underestimating future returns. It’s not about chasing complexity—it’s about improving efficiency.

Enhanced sounds like a strategy that requires a lot of discipline. What do you think clients care about most when evaluating this approach?

Mark: Two things come up often. First: will this consistently add value net of fees? And second: will you be able to outperform when markets get tough?

Our answer is that we’ve been running enhanced strategies in global equities for over 10 years, through very different market conditions. The excess returns are not spectacular in any single year—but they are persistent. That’s what matters when you’re building a long-term allocation.

We also emphasise transparency. Clients can see what’s driving returns, how tracking error is controlled, and where active decisions are being made. That builds trust—especially with professional investors.

Why should investors consider Quoniam specifically for enhanced strategies?

Rocío: A few reasons. One is experience—we’ve been managing dedicated global enhanced portfolios for more than a decade and systematic equity strategies for over 25 years. Another is breadth: we analyse thousands of stocks every day, across the full capitalisation spectrum, using a science-based process that is repeatable and well-governed.

We don’t limit ourselves to large caps. Our models are designed to capture tiny, persistent inefficiencies wherever they appear—and implementation is key. A great model only delivers value if the portfolio is constructed precisely and traded cost-effectively. That’s what we do.

Final thoughts—what’s the case for making the jump from pure passive to enhanced strategies?

Mark: If you believe that markets are mostly efficient, but not perfectly efficient, enhanced is a rational next step. You’re still diversified, still low-cost, still invested in the entire market—but with a greater chance of achieving excess return over time. And you’re not taking the binary risk of fully active.

In an environment where return targets are harder to meet with benchmark exposure alone, even small improvements matter. Enhanced offers a way to stay close to the benchmark—just more intelligently.

Conclusion

Enhanced strategies offer a compelling approach for investors seeking to improve risk-adjusted outcomes while participating in markets. For global equity exposure in particular, it can provide a low-cost edge—if implemented with care, data, and experience.

Enhanced offers a clear framework for capturing small but meaningful advantages—consistently and transparently. It’s an approach we’ve continuously developed over the past ten years and remain committed to going forward.