KEY POINTS:
The rough start to 2008 for markets has led to fund manager AMP Capital Investors already reconsidering its outlook for the rest of the year.
"We've certainly had some sharply negative returns for the month of January," head of investment strategy Leo Krippner said.
Preliminary figures show AMP Capital's growth diversified fund, which has the most weighting in riskier assets such as New Zealand and global shares, losing 6.4 per cent in January.
Its balanced fund was down 4 per cent, and the conservative fund down 0.9 per cent. Cash, a safe asset that accrues interest, had the positive performance with a gain of 0.8 per cent.
In the December quarter the growth fund was down 3.4 per cent, the balanced fund down 2 per cent, the conservative fund unchanged and cash up 2.2 per cent.
For all of 2007 growth was up 6.8 per cent, balanced up 6.9 per cent, conservative up 7.1 per cent, and cash up 8.5 per cent.
Looking at different types of assets, unhedged global shares were down 10.7 per cent in January, hedged global shares were down 9.2 per cent, New Zealand shares were down 9.4 per cent and global property securities down 4 per cent.
New Zealand property was looking better with growth of 0.8 per cent in January, on top of 1.9 per cent growth in the December quarter. For the whole of 2007, New Zealand property put in a "stellar" performance with growth of nearly 31 per cent.
Krippner said AMP Capital did not get influenced by fluctuations in the latest data.
Downside risks to the forecast for 2008 looked like they had risen and some had even been realised, he said.
At the end of 2007 and start of 2008, returns on a diversified portfolio of around 8.5 per cent were expected.
"Now it looks like we could potentially end up with something less if these downside risks continue to grow," Krippner said.
Despite that, AMP Capital's view was still for "reasonable" returns from diversified funds over 2008.
While he had not done a new forecast, if he were to it would not be that much less than 8.5 per cent.
Volatility was expected, and maybe even some further weakness in returns in the first half of this year, he said. But in the second half, such moves as interest rate easing in major economies would start to kick in and would drive returns.
The big gains on New Zealand property in 2007 were due to revaluations, Krippner said.
Strong capital gains in recent years had tended to be matched by strong rental increases, leaving rental yield for office property at around 7.5 to 8 per cent.
That was well above overseas yields and made this country quite attractive for investors, he said.
The first signs were probably showing up now of rental yields probably coming down a little in New Zealand to between 7 per cent and 7.5 per cent.
But positive returns were still available from New Zealand property, which was one of the reasons AMP Capital liked being overweight in that portfolio.
It was prudent to be cautious for now, Krippner said.
"We didn't simply rush out and say, 'stocks are 10 per cent cheaper now than they were before, let's go and load up on them'.
"Because the real question is why are they 10 per cent cheaper than before, and if the earnings outlook is potentially going to have some downside to it, then they might get cheaper again yet."
"We don't want to overreact, or anything like that, but we think it's prudent to reduce growth assets."
- NZPA
