[International and especially emerging market investing requires a rather open and expansive mindset—along with an uncommonly focused set of perceptive eyes. The word “vision” comes to mind because you have to be able to see beyond the normal, conventional way of thinking and apply your core knowledge and training to a foreign environment. Developing that vision has a series of challenges and dimensions to account for—unusual market dynamics, cultural differences, varying business operating standards and quantumly diverse economic and historical forces at play in each foreign market. Investment decisions need to be wrapped around totally different contexts that are inherent in each market and that are also dynamically changing as well. For without this clarity of mindset and vision, it is easy to not see the forest for the trees, the benefits within the chaos or the opportunities hiding in plain sight. With it, you can position yourself as an investor to benefit from the specific pathway to growth that each foreign market is on.
Now here is where this gets real interesting—how do you build that needed mindset and vision for foreign markets and emerging economies? Different perspectives have led to starkly different investment approaches being applied to international and emerging market investing today.
To better understand and explore this active, international investment mindset and vision component, The Institute for Innovation Development reached out to Robert Scharar, president of Houston-based FCA Corp, a boutique financial planning and investment advisory firm. He is also president and portfolio manager at Commonwealth Funds, which has an unusual mix of international portfolios including an Africa Fund, Australia/New Zealand Fund, Japan fund, global Real Estate fund and a diversified Global fund. We were particularly interested in learning from his experience and his unique journey in developing the mindset and vision behind his eclectic international offering.]
Bill Hortz: What led you to create fund portfolios in this rather eclectic mix of investment areas?
Robert Scharar: Family ties to New Zealand dating back over a century led to me visiting New Zealand in the late 1970s. I was fascinated by the small economy and stock market and the ability to grasp how that country functioned in manageable bites. I even bought a few stocks for myself. This led to doing some direct investment for clients in New Zealand equities but the complexities—different tax rules, foreign exchange, increased regulatory complexities and cost of individual accounts—made this difficult. Sensing an opportunity to apply our New Zealand expertise, in 1991, we launched the New Zealand fund (now Australia-New Zealand). In the mid-90s, similar direct investment, business development and consulting opportunities presented themselves in a number of African countries which led to a growing knowledge of the unique opportunities in that continent.
Based on these experiences, we developed local knowledge and business experience, had access to ongoing on-the-ground information and started offering investment opportunities not easily accessible to most U.S. investors and that would offer increased portfolio diversity. To ensure that we would accomplish this, we decided to not construct our portfolios to mirror local/regional indices, but rather looked for small or mid-cap securities not easily found or accessible to most U.S. investors—stocks whose values could be influenced as much by local factors as the up and downs of the “global markets” and not duplicate a typical U.S. investor’s current portfolio.
Hortz: What have you learned about investing in these international markets that you weren’t aware of previously?
Scharar: While having access to a Bloomberg terminal puts everyone on equal footing in getting “the numbers,” we very quickly realized that the Internet cannot provide authentic experiences that can drive our decisions. Going to places and seeing first-hand the culture, consumers and businesses gives a person the insight necessary for a disciplined investment approach. We learned that you need to have an active, experienced business perspective in making investment decisions. You need to have the practical, local business knowledge in truly understanding the big picture and the subtle nuances of the operating environments in the markets you are investing in.
The advisor, FCA Corp, had the good fortune to be able to search out and develop working business projects and partnerships in the many regions we eventually launched and offered mutual fund and other investment opportunities in. This allowed us to bring a real-world perspective on both the business and market environments of these regions. For example, our participatory international business experience includes consulting on building ports in Africa and the Caribbean; negotiating a large capital purchase in China; building and operating hotels and shopping centers in Africa and New Zealand; partnering with a Japanese real estate group; advising an Australasia tourism company; engaging insurance and banking firms in Africa, Australia and New Zealand; energy projects in Africa; working on accounting and audit reports under IFRS (International Financial Reporting Standards); preparing foreign income tax returns; goodwill education missions; and export/import trade negotiations. For example, being part of building a shopping center in Africa exposed us to the underlying opportunities in that industry and gave us real insight in the growing consumerism on the continent.
Hortz: Can you tell us about some of the companies that can illustrate for us what you see as truly unique investments in unusual environments or timing opportunities that investing in these areas provide?