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Allocation Lessons From Dubai International Capital

Posted: Jul 09, 2008 14:43 PM by Gregory S. Davis

Tickers in this Article: MS, HBC, C, WB, IBN, DAI, SNE

M&A professionals in the U.S. who have international aspirations should consider a position in Dubai. Earlier this month Dubai International Capital named Morgan Stanley (NYSE:MS) veteran David Smoot head of its Private Equity division. (This exciting sector demands a lot from its advisors. Learn more in Acquire A Career In Mergers.)

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For investors, this trend could mean U.S. companies will continue to represent attractive investment opportunities for countries diversifying their oil wealth. Let's take a look at investments made by Dubai International Capital, the investment arm of the holding company controlled by the ruling family of the Emirate of Dubai.

HSBC Holdings
Since the beginning of the year

U.K.-

based HSBC (NYSE:HBC) is down roughly 10% making it the best performer of the bunch. The credit crisis and the devaluation of asset-backed securities led to heavy trading losses for HSBC during the first quarter of 2008. The trading losses led to huge write downs similar to losses taken by Citigroup (NYSE:C) and Wachovia (NYSE:WB). In its favor HSBC does have a strong global brand name and a solid cash position.

Icici Bank
India's Icici Bank (NYSE:IBN) has been one of the most volatile holdings in Dubai International Capital’s equity portfolio. A stock with a beta of 1.3 could be 30% more volatile than the market. Icici Bank has a beta of 3.11. Year to date Icici Bank is down more than 50% making it the worst performer in this group. On the bright side Icici Bank has the lowest PEG ratio at 0.55 suggesting that it may have the greatest earnings growth potential over the next five years.

Daimler AG
Despite consumer fears, German luxury automaker Daimler AG (NYSE:DAI) has remained resilient. Daimler's U.S. car sales increased slightly by 1.5% for the first six months of the year. Strong domestic truck sales helped keep them afloat. Given the uncertain future of inflation and gas prices, Daimler shares have also been pushed down approximately 35% since the beginning of 2008.

Sony
The movie box office winner this Independence Day weekend was the Sony (NYSE:SNE) film, "Hancock" starring Will Smith. Sony's winning bet on Smith helped generate $66 million over the weekend beginning July 4. Tokyo based Sony, the electronics and entertainment giant, is down nearly 20% since the beginning of the year. With consumer discretionary spending being curtailed by higher costs for energy and food, Sony stock has also felt the pressure.

Conclusion
Dubai International Capital has done a good job of diversifying across industries and geographic regions. The take away for investors is to constantly look for investments that are not recording spectacular short term returns, but rather display signs of future growth. Dubai International Capital's asset allocation teaches investors to consider that the leaders of today will not necessarily be the leaders of tomorrow.

For further reading, check out Choose Your Own Asset Allocation Adventure and Asset Allocation Strategies.

By Gregory S. Davis

Gregory S. Davis is an investment writer and consultant for his company G.Davis Capital Inc. His core methodology for choosing investments include patience, diversification and asset due diligence. Gregory is a graduate of the Wharton School of Business. He is also a board member of StoriesWork, a non-profit organization based in Durham, NC that uses storytelling to empower youth and individuals to utilize alternative dispute resolution tactics.

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