Why First Global’s Devina Mehra expects interest rates to remain high

“I am not in the camp that sees the US Fed cutting interest rates anytime soon. The only way the Fed will start cutting rates soon is if things get bad on the banking and financial side. At the meeting, Chairman Jerome Powell said that if tightening financial conditions served the same purpose as monetary tightening, then we wouldn’t have to be as tight. But you’ve got to have something there to bring down inflation by basically inducing a recession. Have to bring,” Mehra said during an interaction Peppermint For Guru Portfolio Series. In this series, leaders in the financial services industry share how they are handling their finances and investments.

Mehra, who is also the chairman and managing director of First Global – an investment management firm that provides globally diversified investment solutions across geographies and asset classes, says that last year was very unusual in terms of performance of different asset classes. Was. The year was marked by the start of the Russia–Ukraine War, which contributed to rising inflation and rising interest rates as central banks tried to contain inflationary pressures.

All about asset mix

Mehra, who began her professional career with Citibank in 1986 before founding First Global in 1993, says that about 18% of her personal portfolio is invested in Indian markets. Of the remainder, fixed income comprises 14%, commodities 5% and gold 4%, while the rest (about 77%) is in global equities. Globally, fixed income investments are a mix of high-yield investments and investment-grade investments, all organized through diversified funds. Barring a few legacy stocks, most of Mehra’s investments are made through First Global’s own funds.

Mehra says keeping a close eye on macro-economic trends is more important than ever given the way global markets have performed recently.

“The world has become very dynamic. Some global trends may not last even for a year. That is why we look at things afresh every quarter. Last year was one of the worst years in the history of global markets. Every other sectoral equity index was down, every fixed income index was down. Only oil and gas and some agricultural commodities went up. That’s why we had a higher commodity allocation last year. Metals — industrial metals and precious metals — also went up, but after Hence, the net displacement for the year was zero,” says Mehra.

Meanwhile, there was a lot of bad news in Europe to deal with for most of last year following the Russia-Ukraine crisis. “Yet, for the period 1 April 2022 to 31 March 2023, Europe is the only market that is up in equities and that was quite surprising,” she adds.

Mehra gives the example of rupee depreciation to illustrate how the macro-economic picture can change rapidly. This happened early last year when India’s central bank, the Reserve Bank of India (RBI), had not yet started raising interest rates and all other emerging markets had already done so.

“In early 2022, I have gone to an extent in saying that this year we will definitely see a fall in the rupee. At that time currency was not on anyone’s radar. I had said that this year (2022) we would almost certainly see a fall in the rupee and it happened. Governments and central banks like to control all the macro-economic variables, but if you try to fit everything, something will come out, and that was my call. The RBI wanted to be pro-growth, but the impact would have been elsewhere and my bet it would most likely be on the currency,” she says.

risk before return

Mehra, who is based out of Dubai, says his approach to investing is to first look at risk management and then maximize returns.

This is the reason why liquidity is an extremely important parameter for Mehra in his investment framework.

“I place a very high premium for liquidity. Hence, I would not buy real estate as an investment, I rarely favor buying unlisted equities, also do not look at structured products or products where pricing is opaque And there’s a lack of transparency,” she says.

“I have a residential house in India, but I don’t see it as an investment,” she adds.

Mehra does not keep a separate emergency fund, but says that since all her investments are highly liquid, any of these can be easily liquidated should the need arise.

While First Global’s fund invests in small-cap stocks, Mehra says that his investment team goes ahead with only those ideas that meet liquidity criteria such as market cap and market turnover, apart from other risk criteria.

“So, for us small-cap is a company whose market cap is in the middle 1,000 crores and 5,000 crores. Normally, our small-cap allocation would be in the range of 13-20%. When stock prices are rising, everything buzzes in small-caps, but when prices suddenly fall and you want to exit, it is difficult to exit small-caps due to lack of liquidity she says.

Mehra’s Indian Fund has a small-cap allocation of 17%, mid-cap allocation of 27%, large-cap allocation of 54% and cash of 2%.

Mehra’s equity investments are spread across various geographies, with the US accounting for the largest allocation (48%) of the global portfolio given the sheer size of US equity markets.

advice to investors

Mehra says if there’s anything investors can learn from last year’s volatility, it’s that asset classes will continue to be in and out of favor, but what will help them over the long term is an asset allocation approach to investing, a Build a well-diversified portfolio and have a long-term investment horizon.

“Don’t invest based on current stories. Changing the focus of your entire portfolio with every new trend is not a healthy strategy. For example, gold is doing well now, but investors forget that the 1983 and 2003 In between, gold did not give any returns in the entire 20-year period.”

“Asset allocation determines 85-90% of your returns. So, do it in a very focused and deliberate manner. First of all, know what is your asset allocation. Most people don’t even know it,” she adds.

The second piece of advice Mehra has for investors is global diversification. “The rupee has historically depreciated against the dollar. When I started, trading for a dollar 12 is around today 82-83. Hence, the rupee has depreciated by about 85%,” she says.

And most importantly, Mehra says risk management is something investors should never ignore. “Always set your risk management framework right at the outset, with stop-loss levels, and have the discipline to stick to it. Everyone up to Warren Buffett can make investment mistakes, so having a risk management framework is important,” says Mehra.

She says that investment is a loser’s game. “So, the first thing you need to do is make sure you don’t lose in order to win,” she continued.