AMP – Page 7 – Digital Finance Analytics (DFA) Blog

House price crash ‘unlikely’: AMP Capital

Australian house prices are facing a downswing over the next two years, but a crash in prices remains unlikely, according to AMP Capital as reported in InvestorDaily.

House prices in Sydney and Melbourne have risen by 60 and 40 per cent respectively over the past four years, said AMP Capital chief economist Shane Oliver – and the median house price in Sydney is now 12.2 times household income.

Additionally, Mr Oliver explained that the rise in house prices has “gone hand-in-hand” with increasing levels of household debt, making the debt to income ratio for Australian households one of the biggest among OECD countries.

“The surge in prices and debt has led many to conclude a crash is imminent, but we have heard that lots of times over the last 10-15 years. Several considerations suggest a crash is unlikely,” Mr Oliver commented.

Mr Oliver explained that debt interest payments relative to income are around 2004 levels, and lending standards in Australia have not dropped to levels seen in other countries.

The risk of housing oversupply is also unlikely to cause a price crash, as “this would require the current construction boom to continue for several years”, Mr Oliver said.

Mr Oliver added that the risks on the “supply front” are clearly rising in relation to apartments, where approvals to build additional units are running at more than double normal levels.

Altair Asset Management chief economist Stephen Roberts also cited rising levels of housing inequality in China as a risk factor to Australian house prices, explaining that the Chinese government’s recent focus on excessive house price speculation could have a flow-on effect on Australian prices.

“It is reasonable to assume that policy moves to contain house price inflation in China will increase and will reverberate through to investment demand for housing overseas too,” Mr Roberts said.

Both Mr Oliver and Mr Robertson commented that housing construction is likely to ease in 2017, however Mr Oliver remarked such easing would be unlikely to affect the economy as “this is likely to coincide with a fading in the detraction from growth due to falling mining investment and commodity prices”, where Mr Robertson said otherwise.

“The contribution to economic growth from housing will be less in 2017 than in 2016 and will probably lessen the contribution to growth from housing related consumer spending too,” Mr Robertson said.

“In time, policymakers will respond to the weakening outlook, probably with the RBA resuming its cash interest rate cutting program around the middle of 2017.”

AMP launches new advice business

AMP has launched a contemporary financial advice business, AMP Advice, creating a new customer experience and making goals-based advice more accessible to more Australians. AMP Advice combines interactive technology with personalised advice to help customers explore, plan, track and realise their goals.

The implementation follows an extensive period of testing and feedback from AMP’s aligned adviser network and customers.

AMP Advice encompasses:

AMP Advice branded practices located around Australia where customers can identify their goals using AMP’s new Goals Explorer technology. Working with a Goals Coach they can choose from 29 goals identified by AMP’s research as being most popular for customers or create new goals specific to their circumstances.

Access to My Money Style, a unique application customers complete to reveal their behaviours with money and risk appetite.

Advice Explorer scenario modelling which customers and advisers use together to develop lifestyle and financial plans targeted at achieving their specific goals.

AMP Group Executive Advice and Banking Rob Caprioli said the purpose of AMP Advice is to make goals-based advice more accessible to the 80 per cent of Australians who don’t currently have a relationship with a financial adviser.

“When delivered well we know face-to-face financial advice improves the lives of our customers.

“We also know the concept of personal goals has long been the foundation of the most effective financial advice. This principle has driven the development of AMP Advice, through which goals frame every aspect of the advice process,” said Mr Caprioli.

AMP research indicates that Australians who have clearly defined goals and a plan to achieve them are under considerably less financial stress.

David Akers has been appointed Managing Director, AMP Advice, reporting to Mr Caprioli. Formerly Director of Future of Advice Business Solutions at AMP, Mr Akers will lead AMP Advice as it expands its national footprint.

There are currently 11 AMP Advice practices located around Australia, with between 20 to 30 expected to be operational before the end of the year.

AMP’s employed adviser licensee, ipac, is currently transitioning to the model, with five locations now operating as AMP Advice.

AMP’s other aligned licensees, Hillross, Charter and AMP Financial Planning will continue to operate under their existing brands and structures.

In announcing AMP Advice, Mr Caprioli reinforced AMP’s commitment to its existing advice network.

“We are continuing to invest in technology and systems which will benefit all our advisers, allowing them to spend more time with more customers.

“We also recognise that to deliver more advice we must operate to the highest standards of professionalism,” said Mr Caprioli. “Ethics, education and high customer service standards will continue to be integral to how we deliver advice.”

In August 2014, AMP announced a series of measures across its advice network to significantly lift the bar on adviser professionalism and reinforce its commitment to stand behind the advice it gives to consumers.

AMP Advice is core to AMP’s strategy to become a more customer focused, goals-based organisation. It will integrate with a range of other AMP goals initiatives planned for release in the second half of 2016. These include the AMP Bett3r Account, which helps customers simplify their finances, a solution to help manage and optimise income through retirement and a holistic insurance offering.

AMP Underlying Profit Down 10% 1H16

AMP released their 1H16 results today. They reported a net profit of $523m for the half, up 3% when compared with 1H15. However, underlying profit, (after one-off costs, adjustment for some investment market volatility and accounting mismatches) were $513m compared with $570m for 1H15, down 10% year on year. The results were impacted by higher claims in Australian wealth protection and volatile investment market conditions.

Australian wealth management net cashflows were $582m, down from $1,152 in 1H15. Both retail and corporate super platforms were subdued because of weaker investor confidence relating to proposed superannuation changes and market volatility. AMP Capital external net cash flows were $153m, down from $3,025 in 1H15.

Overall revenues from ordinary activities were $6,096m compared with $8,624 30 Jun 2015, down 29%.

The cost to income ratio increased 2.4% compared with 1H15 to 45.5%. Costs were up $6m to $663m, compared with 1H15.

Underlying return on equity reduced 1.6% to 11.9% compared with 1H15.

They declared an interim dividend of 14 cents per share, in line with 2015, a payout ratio of 81% of underlying profit.

Equity and reserves of the AMP Group increased to $8.6bn, from $8.5bn in Dec 15.

AMP holds Level 3 capital above the minimum requirements of $1,917m, but down from $2,542m 31 Dec 15. The decrease is mainly due to the redemption of $60m subordinated notes.

Looking at the segmentals, AMP has six key business areas, Australian Wealth Management, AMP Capital, Australian Wealth Protection, AMP Bank, New Zealand Financial Services and Australian Mature.

Australian wealth management earnings were $195m, down 6%, reflecting challenging market conditions.

Australian wealth protection earnings were $47m, down from $99m in 1H15, reflecting poor claims experience across income protection, lump sum and group insurance.

AMP Capital lifted earnings 15% thanks to a growth in fee income.

AMP Bank increased earnings by 18% to $59m with an expanded NIM at 1.71%, compared with 1.53% 1H15. Total loans grew by $816m to $16b, up 5.9%. Within that, the residential mortgage book grew $806m, to $15.4b, up 5.5%. Owner occupied loans made up 73% of the portfolio. Investment lending recommenced in November 2015. More new loans are via mortgage brokers, and as a result new loans from their advisor channel fell to 19%, down from 24%. Mortgage arrears (90days+) were 0.51%, and impairments 0.04%. Deposits grew 11.4% and deposit to loan ratio was 67%. The CET1 ratio was 7.9% and the liquidity coverage ratio was 126%.

New Zealand earnings were up 2% reflecting higher profit margins. Net of tax relief reductions, it would have been 19%

North Assets Under Management grew 26% to $23.4b

The group was also helped by the ongoing efficiency program which overall will contribute $200m by end of 2016.

AMP Bank Cuts Mortgage Rate By 10 Basis Points

AMP has said the Bank will reduce interest rates across all variable rate home loans by 10 basis points, effective Monday 22 August 2016.

The AMP Essential Home Loan for owner occupied loans will be reduced to 3.98 per cent per annum (comparison rate 4.00 per cent per annum).

The AMP Professional Pack Home Loan for owner occupied loans of $750,000 and above will be reduced to 3.85 per cent per annum (comparison rate 4.22 per cent per annum).

Sally Bruce, Managing Director AMP Bank commented: “We aim to provide our customers with competitive interest rates to help them own their home sooner.

“Changes to our home loan rates take into account not just the decision by the RBA but other factors such as wholesale funding costs, which are continuing to increase,” she said.

SMSF trustees ditch equities in favour of property and cash

SMSF trustees have diversified away from international and domestic equities, instead favouring property investments and opting to hold more in cash reserves, according to the SuperConcepts SMSF Investment Patterns Survey.

An analysis of SMSF investment trends across the 2016 financial year shows investments in Australian shares reduced from 37.1 to 34.5 per cent of portfolios, while international shares decreased from 14.1 to 13.1 per cent.

SuperConcepts Executive Manager Technical & Strategic Solutions, Phil La Greca said the continued volatile markets could be driving the more cautious approach SMSF trustees are adopting.

“Over the financial year, we’ve seen a large number of SMSF trustees diversify away from international and domestic equities. At the same time, there’s been an increasing number of investors moving into property and cash, suggesting they are looking to reduce their exposure to the stock market, which experienced periods of higher volatility during the period.

“Despite the reduction in equity investments, there remains an opportunity for SMSF trustees to further improve diversification with a large number of portfolios still heavily weighted in Australian shares, particularly the ASX top 20 stocks. The major banks were the most commonly held investments at 30 June 2016,” he said.

The move to more conservative asset classes saw cash holdings increase from 17 to 18 per cent of portfolios over the financial year, despite cash interest rates continuing to decline.

“We’ve seen trustees increase the amount of cash they have invested in short-term term deposits, climbing from 4.7 to 5.5 per cent over the year. With current interest rates on term deposits providing little returns, the move to cash could mean investors are feeling less confident in the stock market,” Mr La Greca said.

Property, both direct and listed, has continued to prove a popular investment for SMSF trustees, increasing from 18.3 per cent of investments to 21.7 per cent at the end of the financial year.

Proposed changes to superannuation has appeared to impact confidence with a significant reduction in average contributions to an SMSF, dropping 38 per cent from the June quarter in 2015 to the June quarter in 2016.

“Average contributions to SMSFs declined over the financial year, particularly in the December, March and June quarters compared to previous corresponding periods, a likely result of the uncertainty around potential superannuation changes before the May budget. Contributions declined from $17,320 in June quarter 2015 to $10,748 in June quarter 2016,” Mr La Greca said.

The SuperConcepts SMSF Investment Patterns Survey covers approximately 3,300 funds, a sample of SMSFs administered by Multiport (part of the SuperConcepts group) and the investments they held at 30 June 2016. The assets of the funds surveyed represent approximately $3.1 billion.

SuperConcepts acquires software funds in strategic alliance with Reckon

SuperConcepts has announced the acquisition of Reckon’s Desktop Super platform, which will see the transition of approximately 16,000 SMSF software clients to the SuperConcepts business.

The acquisition continues SuperConcepts’ growth as a provider of SMSF software services to accountants and specialist SMSF advisers, increasing its market share across both administration and software services from 6.8 to 9.7 per cent.

SuperConcepts and Reckon have also formed a strategic alliance to leverage each other’s expertise and industry relationships to provide customers with a leading SMSF software service.

Natasha Fenech, CEO SuperConcepts said the acquisition and strategic alliance is another step forward ingrowing the SuperConcepts business as a leading end-to-end service provider in the SMSF market.

“Reckon is a highly-regarded provider of accounting software services. We’re excited to form an alliance that will help us to enhance the level of service and technology available to SMSF trustees and their advisers.

“SMSF software continues to be a key part of our strategy and we will continue to invest in the technology as we expand our service to become a market leader in SMSF software solutions and partner of choice forthe SMSF industry,” she said.

In-line with its strategy, SuperConcepts has continued to build scale in the SMSF market as an end-to-end provider of administration, software and education services to SMSF trustees, accountants and financial advisers.

Sam Allert, Managing Director Reckon for Australia and New Zealand said: “Our strategic alliance with SuperConcepts ensures Reckon is providing the best value SMSF software solution to our clients going forward. We’re thrilled to be to working with a leading brand in the SMSF administration market and this is just the start of a powerful partnership.”

Desktop Super customers will not notice any immediate change to the way they access their funds.

About SuperConceptsSuperConcepts is a leading provider of self-managed superannuation fund (SMSF) administration, software and education services to SMSF trustees, accountants and financial advisers, servicing more than 40,000 funds.SuperConcepts comprises a number of sub-brands including AMP SMSF, Ascend, Cavendish, Multiport, Justsuper, SuperConcepts, SuperIQ, superMate, yourSMSF and a part ownership of Class Ltd. Find out more at www.superconcepts.com.au.

About ReckonReckon is an ASX listed and Australian owned company with over 25 years’ experience delivering market leading solutions to accountants and bookkeepers, legal professionals and small to medium sized businesses. Reckon’s software solutions are designed to make accounting faster, easier and more productive. Find out more at www.reckon.com.

AMP classifies non-resident borrowers ‘unacceptable’

From Australian Broker.

AMP Bank has classified non-resident borrowers as an “unacceptable borrower type” amongst a myriad of other tougher lending rules regarding foreign income lending.

In the note sent to mortgage brokers last week, AMP said non-resident borrowers will now be deemed an unacceptable borrower type, unless a spouse or defacto is a citizen or permanent resident of Australia or New Zealand and a borrower of the loan.

In addition, the non-major has also cracked down on foreign lending income from nine currencies, in particular the Chinese Yuan.

The changes, applicable to any applications on or after Monday 30 May 2016, see only 50% of income derived from the Chinese Yuan (salary, investment and rental) as acceptable.

Where the Chinese Yuan is used for serviceability, the maximum LVR has also been reduced to 50%.

Eight other foreign currencies have also been subject to tightened conditions, albeit to a lesser extent than the Chinese Yuan.

Only 80% of the further eight currencies – Canadian Dollar, EURO, British Pound, Hong Kong Dollar, Japanese Yen, New Zealand Dollar, Singapore Dollar and U.S. Dollar – will be deemed acceptable. In addition, these currencies will also now have a reduced maximum LVR of 70%.

In the note sent to mortgage brokers, AMP said the restrictions came “due to recent changes in the market in relation to non-resident and foreign income lending”.

AMP Capital finds strong correlation between direct and listed real estate over the long term

Investors seeking exposure to real estate should consider listed as well as direct given the returns, diversification and volatility of the asset classes are very similar over the long term, according to AMP Capital.

Don’t tell me it’s not real estate, a white paper written by AMP Capital Co-Head of Global Listed Real Estate James Maydew, demonstrates the correlation between listed and direct real estate increases significantly as the investment horizon lengthens. The daily liquidity of listed real estate, however, means it behaves more like equities if they only invest in the short term.

Mr Maydew said: “Real estate, both listed and direct, is a long-term investment by the very nature of leases that are contractually committed to and the longevity of the physical assets. The two asset classes are essentially the same over five years and beyond as the returns are driven by the underlying real estate cash flows they have in common. For investors who want to maximise risk adjusted returns, an asset allocation between both listed and direct should be utilised at different points in the cycle. Listed real estate can also be a useful proxy for direct for investors who want to get set in real estate but who are struggling to deploy their capital given global competition for quality assets.”

The paper also highlights how listed real estate can be used by investors as a harbinger of what the direct market is likely to do. Analysis of whether real estate investment trusts (REITs) are trading at a premium or discount to net asset value (NAV) has proven to be an accurate predictor of how the direct market will move in the coming year.

Mr Maydew explained: “Put very simply, if a REIT trades at a premium to its NAV, the market believes its assets will appreciate above levels indicated by market pricing of the underlying direct real estate. If we look at listed real estate in the US since 1988, whenever prices have been at a premium to NAV, direct real estate appreciated 96 per cent of the time in the following 12 months.”

Globally, listed real estate is currently trading at a discount to NAV. The biggest discounts are in Asia, with the US and the UK markets also trading at a discount. Australian REITs are trading at a slight premium, with larger premiums ascribed to Continental Europe and the Japanese REIT market.

Mr Maydew added: “In individual markets where listed real estate is trading at a discount to NAV, the best management teams are taking advantage of strong pricing in direct real estate markets, selling on-core assets and utilising the proceeds to either de-lever balance sheets or shrink their equity base by returning capital to investors.”

Don’t tell me it’s not real estate is the first of a series of AMP Capital whitepapers on listed real estate. Mr Maydew noted: “More global investors are allocating to listed real estate and they are hungry for knowledge and insights about the asset class. We intend to release a number of white papers this year on the sector more broadly as well as a range of diverse individual investment themes such as senior living REITs, shopping malls and the impact of disruptive technology on real estate.”

The paper can be downloaded here.

AMP Update Highlights Challenging Market Conditions

AMP Limited today reported cashflows and assets under management (AUM) for the first quarter to 31 March 2016 and an update on its Australian wealth protection business. Domestic and global investment market conditions continued to be challenging during the first quarter, subduing cashflows across the business.

Australian wealth management net cashflows were $209 million during the quarter, down from $342 million in Q1 15. Cashflows were impacted by weaker investor confidence, ongoing market volatility and advisers adjusting to an enhanced regulatory environment. External inflows represented approximately half of total cash inflows, which were $2.8 billion in Q1 16, down 1 per cent on Q1 15.

Total AUM was $112.6 billion, down 2 per cent from $115.1 billion at the end of Q4 15 (and 3 per cent from $116.1 billion at Q1 15). The decline since 31 December largely reflects negative investment market movements during the quarter. Average AUM fell 2 per cent to $112.1 billion from Q4 15.

Total retail and corporate superannuation net cashflows on AMP platforms were $383 million in Q1 16, down from $638 million in Q1 15, as volatile markets and lower investment activity impacted cash inflows. Strong pension AUM growth in FY 15 resulted in higher pension payments in Q1 16.

AMP’s leading wrap platform, North, reported net cashflows of $820 million in Q1 16, down 11 per cent from Q1 15. While North inflows rose 9 per cent from Q1 15, this was offset by a 25 per cent rise in outflows, reflecting strong pension driven AUM growth. Approximately 70 per cent of cash outflows were internal transfers, largely within the North platform.

North AUM grew to $21.2 billion at the end of the quarter, up 19 per cent from $17.8 billion at the end of Q1 15 and up 2 per cent from $20.9 billion at Q4 15.

AMP Flexible Super reported net cashflows of $84 million in Q1 16, down from $347 million in Q1 15, in part driven by lower inflows, reflecting fewer superannuation to pension transitions and growing adviser preference for North. Flexible Super AUM fell 1 per cent in Q1 16 to $14.9 billion and increased 5 per cent from $14.2 billion at Q1 15.

Corporate superannuation net cashflows were $109 million in Q1 16 compared to net cash outflows of $23 million in Q1 15. Cashflows continued to benefit from member transitions from recent large mandate wins while the prior period was impacted by significant outflows within a large corporate plan.

External platform net cash outflows were $174 million in Q1 16 compared to a net cash outflow of $296 million in Q1 15. Outflows from Genesys advisers leaving AMP continue to be lower than expected, with a net cash outflow of $33 million during the quarter. Further outflows of around $350 million are expected during the remainder of FY 16.

Assets under administration for AMP’s self-managed superannuation fund (SMSF) business SuperConcepts were $18.2 billion at the end of the first quarter, a decrease of $566 million or 3 per cent from Q4 15. Across administration and software services, SuperConcepts added approximately 400 funds during Q1 16 and now supports more than 38,400 SMSFs of which 42 per cent are funds under administration. In addition, a large administration deal was completed in the quarter, with approximately 1,300 funds yet to transition to SuperConcepts.

AMP Capital had net cash outflows in Q1 16 of $1,540 million, comprising external net cash outflows of $477 million and internal net cash outflows of $1,063 million. External cashflows were impacted by challenging domestic and international market conditions.

Net cashflows from AMP’s share of the China Life AMP Asset Management Company (CLAMP) alliance decreased to $22 million from $143 million in Q1 15, reflecting the redemption of money market funds of some corporate and institutional clients, in line with their liquidity management practice. These funds were subsequently reinvested in CLAMP products in Q2 16. In Japan, low investor confidence continues to impact cashflows across AMP’s distribution partnerships.

AMP Capital AUM at the end of Q1 16 was $156.5 billion, down 2 per cent from $159.9 billion at the end of Q4 15 and $160.5 billion at Q1 15. Average AUM decreased 1 per cent during the quarter to $157.2 billion, reflecting market volatility.

AMP New Zealand financial services’ net cashflows of A$60 million in Q1 16 were up A$8 million from A$52 million in Q1 15. Softer flows into KiwiSaver were offset by a decline in Other net cash outflows.

Australian mature net cash outflows in Q1 16 were $319 million, compared to a net cash outflow of $361 million in Q1 15.

AMP Bank’s mortgage book increased to $15.3 billion at the end of Q1 16 from $15.2 billion at Q4 15. The AMP aligned adviser channel contributed 22 per cent of AMP Bank’s mortgage new business, impacted by lower investor lending growth in Q1 16. The deposit book increased $415 million (4 per cent) in Q1 16 relative to December 2015.

Australian wealth protection annual premium in-force (API) was down 1 per cent in Q1 16 to $1,943 million compared to $1,958 million in Q4 15. The small decline was primarily driven by 1 per cent falls in API for individual lump sum and individual income protection.

Business update on Australian wealth protection business

For the first quarter of 2016, the Australian wealth protection business was impacted by claims experience losses of $18 million, with the majority of the losses being in retail income protection across both incidence and termination.

While we continue to monitor insurance experience closely, it has not caused us to alter our best estimate assumptions at the present time.

As previously flagged, volatility in Australian wealth protection experience continues to be expected from period to period. During remediation of the Australian wealth protection business, this volatility may at times be amplified.

AMP’s ongoing insurance claims improvement program continues to deliver improved capability and customer outcomes and remains important to the long-term sustainability of the wealth protection business. In addition, we have seen the broader market re-price insurance providing increased flexibility to adjust prices upward if required.

SMSF trustees continue to reduce their exposure to the ASX’s top 10 stocks

According to AMP, SMSF trustees have continued to reduce their exposure to the ASX’s top 10 stocks by market capitalisation as they maintain their search for greater yield and capital growth, according to the SuperConcepts SMSF Investment Patterns Survey.

In the March 2016 quarter, investments in the ASX’s top 10 shares by market capitalisation were significantly reduced from 20 per cent of fund assets invested in 2015 to 14 per cent at 31 March 2016.

SuperConcepts Executive Manager Technical & Strategic Solutions, Phil La Greca said the continued volatile markets are driving trustees to search for investments that drive better returns.

“We’ve seen a significant amount of SMSF trustees diversify away from Australia’s largest stocks. However rather than investing in different asset classes, we’re seeing a trend where trustees are investing in mid and small cap stocks on the ASX.

“It has been an effective strategy with the strong performance of smaller companies on the ASX helping to drive better returns than the index for SMSF trustees,” he said.

The trend to invest in other stocks on the ASX has seen the overall allocation to Australian shares increase marginally from 35.4 per cent to 35.8 per cent over the quarter.

“While many trustees have benefited from this approach, there still remains an opportunity to further improve diversification with SMSF trustees continuing to be heavily weighted in domestic equities,” Mr La Greca said.

During the March 2016 quarter, investments in international equities decreased slightly from 12.9 to 12.6 per cent while funds invested in fixed interest remained steady at 12.3 per cent. Investments in cash increased 0.4 percentage points during the quarter, now representing 18.4 per cent of all assets held.

“Over the past two years we’ve seen the amount invested in cash continue to increase with many trustees deciding not to renew term deposits in the current low interest rate environment,” Mr La Greca said.

Contribution levels to SMSFs in the March quarter were at the lowest level in two years with the average contribution inflow per fund $5,426, down from $6,393 the previous quarter.

“While we typically see a decline in SMSF contributions during the March quarter, this year has been particularly low. This could be a result of concern about speculation on proposed superannuation changes which was top of mind for many trustees during the quarter,” Mr La Greca said.

The quarterly SuperConcepts SMSF Investment Patterns Survey covers approximately 2,900 funds, a sample of SMSFs administered by Multiport (part of the SuperConcepts group) and the investments they held at 31 March 2016. The assets of the funds surveyed represent approximately $3.1 billion.