The historical valuation multiples further illustrates that European small & mid caps are cheaper in long-term comparison than European large caps and, in particular, the US market. This valuation gap, combined with our selection of companies with above‑average cash‑flow potential, creates a compelling starting point for an investment.

In portfolio context, the strategy expands the diversification potential within equity allocations. At the same time, the analysis shows a very low correlation to bonds as well as real assets such as gold and commodities.

The value drivers of classical buyout strategies, combined with a daily liquid and transparent implementation, offer investors an attractive investment solution. In addition, it represents a viable alternative to private‑equity evergreen funds, with the added benefit of materially lower costs.

QuantArea’s approach to systematic equity investing, grounded in economic first principles, disciplined by robust portfolio construction.

Over the past four decades, academic research into equity factor investing has fundamentally reshaped portfolio construction. Differentiating and selecting stocks according to specific characteristics has become a widespread approach. Today, viewing portfolios through a factor lens, both in their construction and in the analysis of their performance, is standard practice.

The numerous publications and academic research have undoubtedly advanced our collective understanding of markets and portfolio construction. But they have also left practitioners with a genuine navigation problem, how to find the right path through the ever-expanding factor maze.

The Gap Between Academic Theory and Institutional Practice

There is more to translating academic research into a solution that works in practice than simply picking a model off the publication shelf. Academic factor portfolios are typically designed as long/short constructs, ignore liquidity constraints, and often disregard transaction costs. A direct, one-to-one translation of these models therefore rarely works. Moreover, regulatory restrictions make many of them infeasible for most real-world institutional investors. Published backtests look compelling on a risk-adjusted basis, often outperforming a simple market-cap benchmark out of sample over 30 or even 50 years, but that’s a necessary, not a sufficient condition for a successful investment.

In fact, for most professional and institutional investors the performance path within the investment horizon matters just as much as the long-run expected outcome. For a strategy to remain credible and stay in place, phases of underperformance must be minimized in frequency, duration and magnitude. The question investors inevitably ask is: was that outperformance luck, the result of special circumstances, or something systematic that can be expected to repeat?

The House View: A Starting Point for Your Investment Solution

At QuantArea, together with professional and institutional investors, we design bespoke equity investment strategies that reflect their investment philosophy and market positioning. Our clients gain rapid access to our advanced infrastructure and unlimited modeling-ready data. We combine these resources with deep expertise and experience in the construction of systematic, replicable, and explainable portfolios.

To structure the conversation with our clients, we have defined a core conceptual and methodological framework to portfolio construction. It serves as our compass through the factor maze. We call it the House View. It’s the starting point for the journey toward a fully personalized investment solution.

We take a deliberately balanced approach to how we use factors, or more precisely, company characteristics, in portfolio construction.

We begin with a basic question: why invest in equities in the first place? The answer shapes our entire conceptual framework. Equity investing, whether public or private, lets investors participate in the economic development, innovation, technological progress, and productivity gains of an economy or region. At the company level, this translates into cash-flow-generating potential, which we approximate through Profitability and Growth measures.

But cash-flow generation alone doesn’t tell the full story. As the Net Present Value rule reminds us, we also need to know the cost of that investment — how much capital is required to generate the expected cash-flow stream? We approximate the “expensiveness” through the Value factor, with the Investment factor as an alternative candidate drawn from the academic literature¹. Together, cash-flow generation and expensiveness form the basis of expected return: our portfolio selection favors companies that, on average, combine higher cash-flow potential with equal or lower expensiveness relative to the broader market-cap-weighted universe. In NPV terms, our “portfolio project” is expected to create more value than the “benchmark project”.

Robustness and persistency requires solving complex optimization problem

A sound economic rationale is only half the job. We pair it with state-of-the-art portfolio construction methodology designed to deliver added value not just over the full investment horizon, but as consistently and robustly as possible over the short and medium term, keeping the magnitude, frequency, and duration of underperformance periods to a minimum.

This requires a comprehensive optimization framework, one that carefully controls deviations in characteristics that aren’t the primary performance drivers of our model, but are essential for stability. These include risk measures such as beta, standard deviation, and tracking error, as well as sector, industry, and — where applicable — country constraints.

We also control deviation from the benchmark in other factor dimensions: Volatility, Dividend/Shareholder Yield, Safety, and Momentum.

Momentum plays a particularly stabilizing role. It acts as a check on our core NPV-based investment thesis, helping to limit the risk of holding stocks that look attractive on our model’s terms but whose market performance may be signaling otherwise.

Our strategies are not intended to work only on paper. We address the complexities of real-world implementation, including single stock liquidity, minimum weight, number of stocks in the portfolio, desired investment capacity, parsimonious trading volumes, realistic cost assumptions, and out-of-sample return simulations.

QuantArea bespoken solutions: modular, flexible, sound conceptually and methodologically

Starting from this framework, clients can bring their own goals, restrictions, ESG criteria, inclusion and exclusion company lists, and flavors — limiting certain characteristics, amplifying others. They can stick with the House View core factors or choose entirely different flavors. The client may require a plain vanilla value or growth portfolio, or a minimum variance portfolio. We would adapt our House View model by changing the role of the factors accordingly, while maintaining the core principles of our methodological approach to portfolio construction and optimization. Different modelling alternatives will make the trade-offs between competing goals transparent and guide the client in finalizing the portfolio parameters.

Our modular portfolio construction approach allows a high degree of flexibility in shaping the final investment solution. Combined with our state-of-the-art, high-performing infrastructure, we can significantly reduce both time to proof of concept and time to market. As a result, investors benefit from an effective and efficient investment solution, at variable costs comparable to a passive investment.

August 19^th,  2026
Carmine Orlacchio, CIO

¹ Fama, Eugene F., and Kenneth R. French, 2015. A five-factor asset pricing model,
Journal of Financial Economics;
Hou K, Mo H, Xue C, Zhang L., 2021. An augmented q-factor model with expected growth,
Review of Finance.

Private equity buyout funds offer compelling diversification benefits within a broader portfolio and have historically delivered attractive returns. However, these funds require a long investment horizon, are illiquid, and come with very high fees. In addition, measuring risk and return is challenging because valuations are based on models rather than market prices.

With our Liquid Private Equity Alternative, we combine the strengths of PE buyout funds with the advantages of traditional equity funds: daily liquidity and market‑based pricing, no minimum investment, and comparatively low costs.

We replicate the portfolio characteristics of buyout funds through the following investment process:

Disclaimer:
The statements and information contained in this publication have been compiled by QuantArea AG to the best of its knowledge for informational and marketing purposes only and are intended exclusively for professional investors within the meaning of the Swiss Financial Services Act (FinSA). This publication does not constitute a solicitation, invitation, offer, or recommendation to purchase or sell any investment instruments or to engage in any other transactions. Past performance or positive returns of an investment are not a guarantee of future results or positive returns. No warranty is given for the accuracy or completeness of the information contained herein.