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AMP Capital turning conservative

Global credit concerns have led the country's largest fund manager to tilt towards a more conservative portfolio.

Thursday, May 1st 2008, 5:54AM

by Rob Hosking

AMP Capital Investors is tilting away from global shares, bonds and New Zealand shares, towards local cash, bonds, property and foreign currency exposure.

In the most significant shift, AMP has gone from 1% overweight in global shares to 2% underweight.

Chief strategist Leo Krippner says this is because of growing concerns the earnings from global shares will not hold up as well as currently anticipated.

"Earnings do seem to be quite stabilised at the moment but there's much more potential for surprises on the downside," he says.

Earnings forecasts for those global equities tend to be over-optimistic at the start of a downturn, he says.

"Prospective PE ratios look attractive, but they are analyst forecasts. And earnings are already very elevated relative to economic activity."

The switch away form global bonds is a result of the international credit crunch.

"Global bonds do have a lot of structured products – lets use the euphemism," Krippner says.

"There's a lot of CDOs, tranching, collateralised loans. By the time you explain all that to the average investor you then have to ask, hang on, why are we in these things anyway? There's a lot of risk."

Global property is like global bonds in that respect, he says.

"It looks good but you just don't know what the financing arrangements are. So you're better off to divert away from there."

The March quarter saw poor returns, with only AMP's cash fund in the black, at 2.1%.

The growth fund was negative 6.7% for the quarter, and the balanced fund was negative 4%. Even the conservative fund made a small loss.

Krippner says although the trend is not likely to remain that bad for the rest of 2008, it will "probably be a pretty mediocre year."

Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.

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