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4 June 2026
5 mins read
Over the long term, smaller companies have historically delivered strong returns, although they can be more volatile along the way.
Due to the global small-cap market being very large and diverse, a disciplined and systematic investment approach can help identify opportunities while managing risk.
The Macquarie Global Small Companies Active ETF (ASX: MQXS) is designed to give investors diversified exposure to global small companies, using our systematic process to aim for returns above the benchmark over the medium to long term and before fees.
Global small companies can help broaden the opportunity set within an overall global equity allocation. Historically, global small caps have outperformed global large caps over the long term, and they may also provide different sector exposures compared with index heavyweights.
However, small caps can be more volatile and more sensitive to market cycles. The breadth and dispersion of the universe can also make selection and implementation important - which is where systematic investing can help, particularly if the goal is to seek consistent excess returns while managing risk.
The MSCI World ex-Australia Small Cap Index contains more than 3,600 companies1. This breadth makes traditional, company-by-company research approaches challenging to implement at scale.
While investing in a small cap fund or ETF removes the need to research thousands of stocks, a simple index may not fully capture the opportunity for this segment of the market. The breadth of the small cap universe creates both attractive opportunities and potential traps, making a disciplined and effective selection process critical. When allocating to global large caps, many of the companies are well known and global in nature (think Apple, Google, Microsoft), and the concentration in these companies is also significant. The top 10 of the MSCI World Index accounts for 28.3%2, whilst the top 10 of the MSCI World Small Cap Index represent just 3%3 with many names in the small cap index familiar to investors, such as Sandisk, Hasbro and Ralph Lauren.
This is where systematic (or quantitative) investing can help, by applying a disciplined, rules-based process to select stocks across a large and information-rich universe. The goal of systematic investing is designed around improving consistency of alpha generation, reducing inherent behavioural biases and ultimately managing risk in pursuit of attractive long-term returns.
A systematic investment approach can be more reactive to the challenges of breadth and other market inefficiencies. Instead of just following an index via a passive strategy, our active systematic ETFs start with the index as their investible universe and apply a robust quantitative stock selection process to select and weight stocks with the aim of delivering steady and consistent alpha.
For example, if a company’s fundamentals appear stretched following a period of rapid growth, a systematic model may indicate that a lower weighting may be sensible. This can reduce risk and give a systematic investment manager scope to find other opportunities to allocate this capital.
Like in active fundamental investing, scrutiny of a company’s valuation metrics relative to its peers and its history, evaluation of its balance sheet and the sustainability of its earnings, and a more in-depth analysis of exactly what is driving investor sentiment, are all important systematic considerations when determining the position to take on every stock. However, in systematic investing this can be done at scale due to a data-driven approach rather than relying on capacity constrained individual fund managers.
As such, a systematic portfolio applies a more rational and evidence-based lens to the portfolio whether in highly concentrated markets or during periods of market volatility.
The systematic investment process can construct diversified and highly calibrated portfolios which seek outperformance, while maintaining risk-aware exposure across global small companies, including the potential future leaders of tomorrow.
Over three decades, our robust systematic process has delivered long-term, consistent, index-plus returns across a range of strategies for leading super funds, institutions and everyday investors.
The core of this success is the Macquarie Systematic Investments team’s long standing proprietary quantitative process which sifts through mountains of data: prices, volumes, earnings, expenses, trends, valuations, ratios, carbon footprints and even the ‘tone’ of a company’s announcement. Through this range of proprietary tools, we synthesise the immense volume of data into unique insights to construct a fine-tuned portfolio stemming from 70+ alpha signals.
This process aims to identify companies with the best chance of outperformance and underperformance, while reducing the risks of emotional biases and avoiding unrewarded tilts such as style, sector and country bets.
Consistency is the holy grail of active management. Active managers delivering huge gains one year followed by some tough years which take back those gains doesn’t necessarily help long term investors to achieve their wealth goals.
Macquarie’s systematic investment approach has been developed with the aim of delivering consistent active returns above a fund’s benchmark throughout the market cycle. The way to achieve this goal is by seeking to deliver more attainable alpha for each style of investing. For large caps that may be 1% p.a (over 5-year rolling returns), whereas in small caps, a fund may seek to deliver more due to the breadth of opportunity.
To achieve this, we use a broad range of investment themes combined in a risk-controlled framework to drive performance. Different investment styles perform well at different points in the market cycle; generally speaking, Quality performs well in volatile markets, Value performs well in market rebounds and Sentiment tends to perform well across trending markets.
Our focus is on striking the right balance between generating returns and managing risks. In other words, it is just as important to try to avoid the negative surprises as it is to find winners. To help protect from downside risk, diversification across stocks and sectors is key. Large, oversized positions in single names are a big risk. By leveraging a number of in-house tools, our portfolio managers can effectively monitor the risk exposures of the portfolio. This includes proprietary ways of viewing sector and macroeconomic exposures within the portfolio.
A systematic portfolio such as the Macquarie Global Small Companies Active ETF (ASX: MQXS) incorporates sophisticated considerations for each company’s portfolio weight, rather than the simplistic metric of market cap alone.
To access the breadth of global small caps with a disciplined implementation approach, MQXS uses the MSCI World ex-Australia Small Cap Index as its investible universe, then systematically builds a diversified portfolio of ~200–500 stocks using 70+ quantitative signals and ~100 million data points each week, with the portfolio recalibrated every few weeks.
To learn more about the Macquarie systematic process, please explore our Systematic Active ETF page.
All investments carry risk. Different investments carry different levels of risk, depending on the investment strategy and the underlying investments. Generally, the higher the potential return of an investment, the greater the risk (including the potential for loss and unit price variability over the short term). The risks of investing in this Fund include:
Investment risk: The Fund has exposure to share markets. The risk of an investment in the Fund is higher than an investment in a bank account or fixed income investment. Amounts distributed to unitholders may fluctuate, as may the Fund’s unit price, by material amounts over short periods.
Market risk: The growth investments that the Fund has exposure to are likely to have a broad correlation with share markets in general. Share markets can be volatile and have the potential to fall by large amounts over short periods of time. Poor performance or losses in domestic and/or global share markets are likely to negatively impact the overall performance of the Fund.
Small companies risk: The Fund has exposure to companies generally considered small in terms of market capitalisation and may include recently established entities with limited public information or entities engaged in new-to-market concepts, which may be speculative in nature. Shares in these companies are generally less liquid and more volatile than those of larger companies and therefore, have a higher risk of loss.
Manager risk: There is no guarantee that the Fund will achieve its performance objectives, produce returns that are positive, or compare favourably against its peers, or that the strategies or models used by the investment manager of the Fund and/or underlying fund will produce favourable outcomes.
The Macquarie Global Small Companies Active ETF is designed for consumers who: are seeking capital growth; are intending to use the Fund as a minor allocation or satellite allocation within a portfolio; have a minimum investment timeframe of seven years; have a high or very high risk/return profile for that portion of their investment portfolio; and require the ability to have access to capital within one week of request.
The Target Market Determination (TMD), available at macquarie.com/mam/tmd, includes a description of the class of consumers for whom the Fund is likely to be consistent with their objectives, financial situation and needs.
The Macquarie Global Small Companies Active ETF is a separate class of units in the Macquarie Global Small Companies Fund (ARSN 696 510 504). A separate class of units is not a separate managed investment scheme.