Dean D’Sa : “People need to be careful about investing in gold”

The Co-Managing Director of MCB Investment Management, Dean D’Sa, commented on the Ponzi schemes' scandal and talked about the risks and opportunities while investing in uncertain times.

BUSINESSMAG. In the light of the various Ponzi schemes, are big returns on investment in a short time just a fairy tale?

You can have quick and big returns on investment but they are very rare. Quick returns may happen for a handful of people but in most cases, it takes a lot of time and hard work to identify an opportunity and investors need to be patient as long as they
believe in the explanation being given to them by the investment professional. 

BUSINESSMAG. There seems to be a lot of spare cash lying around…

There is a lot of spare liquidity in the system but it’s not just a case of putting it to use, it’s a question of putting it to productive use. At the moment, with the global economy facing headwinds to growth, it’s difficult to find these productive uses. There is no point building a factory in Kenya, you need to build a factory in Kenya making something that is in demand now and will be in demand in the future. It’s the last part of that sentence that is causing problems right now.

BUSINESSMAG. Are people always reluctant to invest in uncertain times?

Financial markets hate uncertainty and as a result, markets tend to overreact to bad news. This means that there are opportunities to benefit from these uncertain times, but you have to be aware of the risks you are taking. Look at March 2009, the S&P 500 had fallen 56% from its high in 2007, there was concern about more banks defaulting, it took a brave investor to step in and buy equities, but if you did, you would have made 150% including dividends and capital appreciation. There are also examples of where the opposite happened and you lost money. There are dangers and opportunities associated with investing in uncertain times and that is where the research done by our team pays off.

BUSINESSMAG. What is the investment philosophy and strategy of MCBIM in the current context?

Our investment philosophy is to actively manage client portfolios based on the research our team performs on the economic fundamentals and the corporations we invest in. The strategies we implement on portfolios vary depending on the economic environment we are in, but our approach to management focuses on creating a diversified portfolio that will capitalise on the research performed by the team and hopefully generate returns for our clients.

MCB Investment Management is part of MCB Capital Markets - the investment banking side to the MCB Group. MCBIM is the group’s investment hub that manages bespoke portfolios for corporations, pension funds and the MCB fund range for individuals. Our team utilises an internally designed investment process with the aim of generating value for investors who want exposure to financial markets, be it equities, fixed income, currencies etc. That value could be seen as extra returns on investment by some, and for others it may be peace of mind that their investments/savings are being managed by a professional team with a proven track record. We differentiate ourselves from our competitors in our investment philosophy, investment approach, and the way in which we have decided to build our business by creating a fixed income and currency team that manages client money directly from Mauritius.

BUSINESSMAG. Like the Investor Insight event organised recently?

Exactly. The MCB Investor Insight was a conference we held for clients of the group to hear from specialists about what their outlook was for emerging markets, developed equities, fixed income, African private equity, Indian equities and Mauritian equities. The idea was to help investors frame their expectations for 2013 whilst showing the pool of talent they have access to as a client of the MCB Group.

BUSINESSMAG. To what extent have investments been affected by the financial crisis?

Our approach to management and defensive style have allowed clients to weather the storm well as the equity team protected portfolios from the full downside of the move seen in 2008 and our diversified approach ensured that there were allocations to government bonds which saw capital appreciation during this time period. I believe our clients were also able to benefit from having us there to advise them or help them make a more informed decision during these uncertain and volatile times. When you see the value of your investment go down by 20-30%, it’s easy for your emotions to take control and lead you to decide to sell your investments. It may be the easy decision but in many instances, not necessarily the right one. Look at the S&P 500, those who held US equities in 2008 saw their investment fall 56%, but if they held onto those investments until today, they will have made up that loss plus a further 14.5% when you take into account dividends.

BUSINESSMAG. To date, which regions offer the best returns on investment?

It depends on asset classes and time period. We have had a good run in developed market equities since March 2009 with many of them close to reaching new highs, so it’s hard to believe that the best returns will come from there. However, our team does have a favourable view on emerging and frontier markets from both a yield and currency perspective. If I had to pick one region, it would have to be Africa but you need to know the best way to participate in those opportunities. That’s where MCB Capital Markets is the perfect partner for investors. We have MCB Capital Partners that focuses on private equity in Africa, and MCB Investment Management that focuses on listed equities (local and foreign), and  global fixed income and currency markets.

BUSINESSMAG. Do the BRICS (Brazil, Russia, India, China and South Africa) countries still represent good value for investors?

There is still value in the BRICS as it will take a long time for the demographics to play out. It’s just that since the end of 2009, their equity markets have been under pressure and since 2011, their currencies have depreciated versus the USD and their bond yields remain attractive with 10yr bonds in Brazil and India yielding 9.60% and 7.75% respectively. However, after 12 years of money flowing into these countries, their economies are changing and so are the associated risks.

Investors should also consider looking at the Next 11 countries (Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, Turkey, South Korea, and Vietnam) having a high potential of becoming the world’s largest economies. Since the beginning of 2011, a BRIC ETF has fallen 12% whilst a Next 11 fund has risen 15%, both in USD terms.

BUSINESSMAG. Gold prices have fallen over the past weeks: is it a golden opportunity to invest in the yellow metal or are its golden days really gone?

I think people need to be careful about investing in gold. I can understand investing in gold as a hedge against inflation or as part of a commodity allocation in a portfolio though I believe the price could head lower over the coming months. However, I would not advocate buying gold for capital preservation reasons because the price of this asset is now moving by 130 USD intraday. That is not security, that’s volatility.