Morningstar has downgraded AMP’s Total Return (TR) hedge fund strategy to a ‘hold’ recommendation.
The drop follows AMP’s November announcement it had amended the TR’s hedging policy from full to partial hedging.
Morningstar acknowledged in its research report, dated November 28, that AMP has said it intends for TR to remain fully hedged in the long run, and that the current change to its hedging policy will allow greater flexibility in managing in the portfolio in the short term “and help alleviate the risk of leverage blowing out”.
However, Morningstar said the change, although for a legitimate reason, has altered the risk/return profile and exposed the strategy to $A/$US exchange rate movements.
“The team is using call options to mitigate further losses, but this can be an expensive way to hedge a portfolio. The rest of the process remains unaltered,” the report said.
TR was restructured in December 2006 and despite a strong initial performance with a “compact multi-manager approach”, the second half of 2008 has produced poor results.
