As they bet on high conviction, the portfolio is concentrated, with the top five stocks taking up almost half of the weightings. The strategy is thematic, and their current favorite theme is the African consumer story, accessed through African exchanges and covering sectors such as packaging, logistics, hotels and financials. They explained the African consumer theme in more detail last summer.
"Those markets are very under-tapped at the moment... especially given that the South African economy is sluggish at the moment and we're looking at 2% GDP growth," Faircliff notes during the recent TV interview. "It's a great theme, it's a great story to sell, but you've got to be very careful on how you allocate capital into those regions," he adds.
The FTSE/JSE Africa All Share Index was up more than 20% in the last year, and South Africa, which has a population of around 51 million, saw its GDP grow by 2.5% in 2012 from the previous year. According to TradingEconomics.com, from 1993 to 2013, South Africa's GDP growth rate averaged 3.2%, reaching an all time high of 7.6% in March 1996 and a record low of -6.3% in March 2009. The country, which is rich in natural resources and a leading producer of platinum, gold, chromium and iron, has had a sluggish growth, below African average, since 2008.
"It's very important that we understand which of these companies actually have a credible African strategy," Bottger comments. "It's exciting to see the degree of operating leverage, essentially when companies do get a growth in Africa. All of a sudden there is a far higher profitability associated with these companies, given that there's just less competition and in many instances the companies that are going into these frontier markets, their economies are dollarized and this brings a whole level of additional margin to the underlying profitability of these companies."In the last 52 months, the Tower fund was up 90% of the time that the Johannesburg Stock Exchange was up, and it was up two out of every three times that the JSE was down. Fund Context Tower Capital now has an 11-member team -- all invested in the fund -- and more than $100 million in assets under management. The Tower Fund (ZAR) was launched in August 2009 and the dollar class of the fund, a Delaware feeder-fund, was set up in July 2012, and runs the same strategy. The local fund service providers are Peregrine Holdings, KPMG and IDS Fund Services; Citco, KPMG and Goldman Sachs (GS) service the offshore fund. This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.