“In days one, two, three, you get the most out of it.” The profit drivers are reviewed at least every six months so that meaningful changes in the corporate management or strategy of businesses, or in economic conditions, are factored in. This provides the opportunity to refine models so that other managers catching on to this type of strategy do not crowd upon the opportunity set. The strategy, which incurs a high turnover rate, invests actively in about 100 stocks in long-only and market neutral strategies which undergo a daily optimisation process to maximise expected returns for a given level of risk, and mitigate sector concentrations. BCS Capital generated favourable results in the backtests, and in its five months of live operation the market neutral strategy delivered an excess return in line with the target of 7.5 per cent net of fees.
In the back-tests, it was run against the 109 core Australian equity managers in the Mercer database, and its highest correlation with these competitors was 0.3 and the lowest -0.3. It was found to not have large exposures to the four dominant risk premiums in investment: size, momentum, book-to-market and the market itself. Brookvine, a marketing and fundraising partner to funds managers, has taken an equity interest in the firm, has invested capital in the BCS strategy, and will oversee its distribution through institutional and wholesale channels. Bowers remarked that the origins of BCS Capital began a little more than 30 years ago, when he and Stuckey were schooled in industrial economics at Harvard before taking their respective career paths. “But we always wondered if we could apply some of the ideas of industrial economics to investment management,” Bowers said.