With the ASX dominated by financial stocks, an asset manager with a largely bank-free portfolio would usually be considered brave, but amid a global rout in bank stocks boutique firm Cameron Harrison looks on the money.
The firm's managing partner, Paul Ashworth, says Cameron Harrison's investment criteria are "pretty brutal" and historically haven't rated Australia's banks highly.
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"Banks historically have not performed very well," Ashworth tells Fairfax Media of the firm's strategy, which identifies stocks by drawing on six qualitative and quantitative measures. They span management performance and financial metrics including the structure of the business, the strength of the company's culture, a flat hierarchy, agility and continuous improvement of strategy.
Ashworth says bank executives have typically failed to successfully deliver on the strategies they promise, which means they have not rated well in its criteria for investment. One of those criteria is management's ability to formulate and implement strategy.
He labels the big banks as "highly leveraged building societies" due to their capital structures and the fact their business mix is now typically dominated by mortgages over business lending.
The Melbourne-based asset management and wealth advice firm invests across asset classes and several of its strategies are dubbed Mainstreet, meaning they avoid financial stocks.
While bank stocks are out of favour in 2016, this strategy would have proved a riskier strategy during strong periods of bank rallies in a market that has a high concentration of financial stocks.
It is for this reason the firm also has an Australian Financials Equity Strategy, which invests in a small number of companies.
Cameron Harrison also seeks to assess potential investments on a forward-looking basis of 15-18 months.
"It's a strategy that does particularly well in volatile times," Ashworth says.
The firm's 12 staff manage $250 million in funds and also advise family offices and businesses.
The Australian Mainstreet model provides exposure to the local market and is an alternative to index investing. It has no exposure to financial businesses, which make up almost 48 per cent of the Australian sharemarket including banks, insurers and diversified financials.
This may also explain Ashworth's view on the insurance sector. "They have been poor managers of capital over the cycle," he says. "We are interested in the strategically best-run businesses."
Cameron Harrison's 21 local stocks are equally weighted rather than market-capitalisation weighted, with the largest proportion of its holdings in small and mid-cap stocks. It has had success with local stocks including construction materials group Adelaide Brighton and telecommunications company M2 Group, which was this year acquired by Vocus Communications.
The firm also has other strategies including the Anglo-Atlantic Mainstreet equity, Australian listed property and interest-bearing strategies that incorporate securities such as bonds and hybrids.
In international equity markets, Cameron Harrison has backed stocks including London-listed beverage can company Rexam and US technology and security company Raytheon.
Cameron Harrison's Australian Mainstreet strategy outperformed the S&P/ASX 200, excluding financials, by more than 15 percentage points in the year ended December 31 and by 5 percentage points over five years. But returns from its Anglo-American Mainstreet strategy were largely on par with its international benchmarks over 12 months and outperformed them by 4 percentage points over five years.
The boutique manager and advice space is becoming increasingly crowded in Australia, particularly as a shift away from larger fund groups continues.
Firms such as Koda Capital, Escala Partners and others are all vying for a bigger slice of the pie.
Ashworth was part of a group of executives that sold the Fordham Group investment business to Perpetual in 2008. He and others parted ways with Perpetual 18 months later and were embroiled in a dispute with the wealth group that was settled via mediation in the latter part of 2013.
Following several scandals involving shoddy advice in the financial planning units of the big banks, Ashworth also has strong views on overall ethical standards in the industry.
"There ought to be strong standards and ASIC [Australian Securities and Investments Commission] should be doing more ... It concerns us that a lot doesn't change. To think that the financial services sector would heavily argue or debate the best interests of the client is surprising."