Across client accounts that have selected the “Growth” Australian equity option we have bought AMP Limited (AMP), a diversified and vertically integrated Australasian wealth manager and insurer. The group includes Australia’s largest financial planning network, a fund management business with an increasing exposure to Asia and a small but growing retail banking business. This purchase was funded from the proceeds of the Crown Resorts (CWN) sale as previously communicated.

We are positive on the medium-term outlook for AMP for the following reasons:

• The mandated growth in superannuation assets given its strong market position;
• A very strong balance sheet with the potential for further capital management initiatives;
• Reduced earnings volatility due to the quota share agreement for the retail insurance portfolio;
• Offshore relationships are driving increased assets under management at higher margins;
• Home loan market share growth driven by cross-selling of products and the active acquisition of mortgage brokers. Further mortgage rate increases are a positive for net interest margins; and
• Improving investor confidence drives a switch into higher margin equity products.

The major challenges facing AMP include:

• Regulatory and government policy changes that undermine confidence in the superannuation system;
• Ongoing average margin compression given fee pressures faced by the industry;
• A competitive insurance market with increasing claims and higher policy lapses; and
• Earnings growth hampered by the Mature business in run-off and the New Zealand and wealth protection businesses being ‘managed for value and capital efficiency’