Scharar: As to a timing theme, all you need to do is travel outside the U.S. and you begin to appreciate how expanded travel to and within these developing regions can impact them. While overall travel trends are projected to grow, by 2030, the Global Sustainable Tourism Council stated that almost 60 percent of travelers will arrive in a country with an emerging economy. While hotels and airlines would seem the obvious way to participate, it can also meaningfully impact infrastructure, service providers, retail, food, human resources and financial companies. Specific local companies can be identified who will be best prepared to reap this benefit.
The high growth rates of the middle class from low levels in these regions provide other unique opportunities. In fact, between now and 2050, Africa is expected to account for about half of the world’s population growth, which translates to more than a billion new consumers in the African market. A great example of a company on this wave is ShopRite Holdings, LTD (SRHGF). They started out in South Africa with 8 stores in 1979 and have grown to 2,738 outlets in 15 countries across Africa and the Indian Oceans islands to become Africa’s largest supermarket retailer. Great management, acquisition strategies, use of technology and focus on customer service should help them continue to grow very competitively in this region.
Hortz: As a business innovation Institute, I’m particularly fascinated with new technologies, business models, and particularly with the unique nature of third world innovation. Can you tell us what you are uncovering as to innovative managements and companies?
Scharar: The truth is that there are many examples of innovations in technology applications and new business model experimentation that are unique to some of these emerging regions. African companies have already been early global leaders in bringing the ability to buy life insurance or move money around on your mobile phone like MPESA did way back in 2007, skipping traditional growth paths and adoption cycles versus the historical paths of other mature countries. In general, the creative use of cloud storage, web-based meeting tools, online education, and Internet delivery of products and services is already having a huge impact in these regional growth prospects.
Capitec Bank (CKHGY), as one example, is a retail-focused bank in SouthAfrica that has been very successful due to its use of technology and direct to customer online and cellular business model. Capitec’s strategy is to deliver a low-cost alternative to traditional banks that successfully has increased its share of transactional retail clients. The bank provides simple savings and loan products, with transparent and affordable pricing and convenient, customer-centric services.
Another example is IkeGPS Limited New Zealand (IKE.NZ) which is a technology company that designs and manufactures measurement solutions—smart laser-based field tools, mobile software apps and industry specific cloud software solutions for measuring, modeling and managing assets for a number of major industries like communications. They are a global leader in perfecting data capture technology specific for field pole measurement for over a decade. Their IKE4 device uniquely combines six best-in-class sensors, calibrated specifically for utility pole measurements that address the growing big data capture and analysis needs of a number of major industries and their increasing regulatory requirements.
Hortz: How would you recommend advisors think about diversification from your experience and utilize your funds for their clients’ portfolios?
Scharar: We bring this real world business-focused perspective not just to our country/continent funds, but it also tilts our investment selections in our global fund and real estate fund that helps complement index funds and index hugger fund managers and thereby is meaningfully additive to overall portfolio diversification. Our portfolios add another dimension to standard “diversified” portfolios with very distinct investment options.
One should not also overlook the emotional factor in investment selection. A traveler to New Zealand must leave with a positive feeling about the country’s beauty, functionality and unique growth prospects. If you travel in Africa and take time to meet the people and look at what is happening in some of the cities, you come away with an appreciation that the continent is getting its act together and in fact promises huge economic potential as the consumer class grows. You could consider our fund as participating through “stock” investing in that future.
The Institute for Innovation Development is an educational and business development catalyst for growth-oriented financial advisors and financial services firms determined to lead their businesses in an operating environment of accelerating business and cultural change. We position our members with the necessary ongoing innovation resources and best practices to drive and facilitate their next-generation growth, differentiation and unique community engagement strategies. The institute was launched with the support and foresight of our founding sponsors—Pershing, Voya Financial, Ultimus Fund Solutions, Fidelity and Charter Financial Publishing (publisher of Financial Advisor magazine). For more information, click here.