As the United States moves closer to invading Iraq, investors have been repositioning portfolios.
Said Steven Bleiberg, chairman of the global equity strategy group at Credit Suisse Asset Management, New York: "We've been making smaller bets and taking less risk in asset allocation because of the uncertainty. No one knows when it's going to happen or what the outcome will be, but we know something is likely to happen."
In equities, CSAM has been overweighting emerging markets and Australia. "Australia has an attractive economy which didn't go through the bubble of technology and telecom. It's a nice place to lay low. Also it's outperformed, so we're sticking with it." He's also underweighting Japan, Europe and the United Kingdom, and modestly overweighting the United States. "The weak dollar will help U.S. companies do better than European companies. It's all relative."
Valerie Sill, head of the equity policy group at The Boston Co., Boston, said the firm recently reduced its weighting in the energy sector, in light of a pending war. "We felt the war premium was built into commodities, with oil over $30 a barrel and natural gas prices weather-related and not sustainable. We had been overweighting the group for the last 18 months and now we're neutral to our benchmark, the Standard & Poor's BARRA Value index."
At the same time, she has bumped up technology holdings, adding to positions in Intel Corp. and Nokia Corp. because she thinks their earnings are at a trough and the companies are attractively valued.
"We think corporate spending on telecom and information technology should resume in the next 12 to 18 months," Ms. Sill said.
But the University of North Carolina at Chapel Hill has taken the opposite tack and increased energy holdings. Mark Yusko, president of the UNC Management Co., which runs the university's $1 billion endowment, said: "War risk makes you want to be more defensive. Defense stocks could be attractive if we go to war. And energy companies will be potential opportunities with good access to non-Gulf related resources. If there is a war, there will be a flight to safety. People will buy Treasuries and gold," he predicted.
"We increased our exposure to the Goldman Sachs Commodity index product because of the war threat and the strike in Venezuela," he said. "We had had 3% of assets (around $30 million) invested there (benchmarked to the index), dropped it in June, and put it back again in October." The endowment now has about $20 million benchmarked to the index. It also committed $10 million each to private equity funds Energy Investors Fund and ArcLight Energy Partners Fund I and is considering a natural resources fund, Mr. Yusko said.