Surfing The Super Wave

There can be few better formulas for boosting a share price than increasing profit and dividends, promising on-going returns of capital and a higher dividend ratio and forecasting average growth in the company’s value of 15 per cent a year for the rest of the decade.

That’s what chief executive Andrew Mohl did while releasing AMP’s interim results and up went AMP shares to touch a high of $7.31 before closing at $7.28, a rise of 26 cents. The performance and outlook marked the return of AMP to the blue chip fold, a reward for those who had faith in the company during the dark days of 2003.

Perhaps the confidence that status can engender is behind Mohl's move to make this the last time the company would give short-term performance guidance. It’s a growing trend among the bigger corporates, as we saw last week with David Murray the outgoing chief executive at the Commonwealth Bank. With the AMP offering such a strong five-year forecast, only analysts wanting the company to do their work for them could complain.

Behind the profit surge is the demise of the vast majority of corporate super funds. AMP’s corporate superannuation direct sales saw cash inflows nearly treble to $450 million in the June six months - more than half of all AMP Financial Services’ cash inflow growth. The big winner from APRA tightening its regulation of corporate super funds is AMP.

As Mohl effectively says in the accompanying video, running a corporate super fund just isn’t worth the effort anymore for the trustees. They are folding by the hundreds and AMP and a few competitors are making fortunes by taking over the responsibility.

It helps that AMP’s funds management performance has picked up as well, the company boasting that 83 per cent of its funds either met or exceeded their benchmarks over the past 12 months. Mohl says AMP gained from being over-weight Australian equities – a strategic decision that is not changing. Check the video for why Mohl won't change his strategy.

AMP's $3.6 billion Balanced Growth Fund scored second place out of 31 funds in its class – not an easy thing to do when you’re that big. While on a successful roll, Mohl made a plea for “greater sophistication” in reporting fund performance by comparing like with like – industry funds with industry funds, boutique funds with boutique funds etc. That sounds just a little self-serving as it ignores the absolute driver: Who is delivering the best returns to investors?

It is of course much easier for a nimble small fund to pick a couple of hot stocks and post significant outperformance, but it is reassuring that large funds with their greater stability can still score in the top quartile. The balancing item for that relative lack of nimbleness is the opportunity to buy into bigger direct investments than small funds can ever contemplate.

The other dimension of the AMP success story is the company’s army of financial planners – or salespeople, as Eureka Report publisher Alan Kohler calls them. The encouraging aspect is an admission that there is a growing trend by those planners to move away from commissions to fee-for-service. Andrew Mohl obviously won’t criticise his frontline troops, but the trend speaks for itself.