RQSI Small Cap Hedged Equity
Why Invest in Small Companies?
Large asset class
- Over 5,000 companies in the opportunity set.
- Ideal scenario for using systematic approach to synthesize large amounts of data.
Inefficient asset class
- Little analyst coverage, low news flow. Fertile hunting ground for exploiting anomalies.
Risky asset class
- Diversification is necessary but not sufficient.
- Dynamic Macro-hedge is crucial
A focus on “Quality” companies is only a single dimension of our risk-control. The portfolio is diversified across company, industry and factor (e.g. value vs. growth). That said, we recognize that there will be structurally difficult periods for equities. To protect against this, we employ a suite of models from our GAA Global Systematic Macro strategy that is specifically designed to reduce net equity exposure in the portfolio during broad market drawdowns:
The result is a low-turnover portfolio of quality small-cap companies, with net exposure that dynamically adjusts between 0% and 100% based on market conditions.
Our “edge” isn’t confined to any one part of the process but, rather, is spread throughout the process itself. We’re not relying on any one “magic bullet” to deliver alpha but have created a process which combines several sources of excess return which are complimentary, diverse and persistent.