Australia | Mar 12 2007
By Chris Shaw
As the Australian equity market has risen to record levels and superannuation has been made a more attractive investment option there has been a corresponding increase in funds flowing into managed investment products, as evidenced by strong inflows in the December quarter.
The latest figures show total retail fund flow of $33.6 billion in 2006, an increase of $13 billion from 2005 and making a total of $490 billion in retail funds under management, which Merrill Lynch notes is a 20% gain from the year before.
A major contributor was the performance of equity markets, Deutsche Bank noting investment gains resulted in 12% growth in funds under management, up from an average of 7%.
The broker suggests though the good times may not continue at the same speed going forward, as it sees potential for a slowdown in fund flows given recent market volatility and the potential for investment market returns to come down from the excellent gains of the past few years.
Macquarie is not so sure, suggesting with the changes to super rules making large contributions possible prior to June 30 this year there is the likelihood 2007 will also be a strong year in terms of fund inflows.
While the broker may be correct, a key will be the type of products investors put money into, as Deutsche supports its view of last year being a cyclical peak by pointing out much of the increase in total funds under management last year was in lower margin wrap-style products. It notes Macquarie Bank (MBL) and BT (part of the Westpac Bank (WBC) group) are performing strongly in this market sector.
In terms of the various players in the sector, Deutsche was somewhat disappointed in the performance of AMP (AMP) as it estimates it lost some market share relative to its size despite a 24% increase in gross inflows While this was above its VNB (Value of New Business) growth rate of 14%, the broker notes much of the increase was in the lower margin products previously mentioned.
Merrill Lynch hasn’t been so tough on the company, suggesting it and AXA Asia Pacific (AXA) actually performed in line with the market, but in terms of market share it was Macquarie and St George Bank (SGB) that achieved the best gains. This is not a surprise in Axa’s case, as Macquarie notes the company’s decision to focus on particular market segments means an outflow of funds is likely.
Despite their lack of outperformance in the period Merrill Lynch continues to suggest AMP and Axa offer good exposure as both stand to gain from increased scale as inflows continue thanks to the structure of superannuation in Australia. The companies remain the broker’s preferred picks in the insurance sector.
In contrast Deutsche rates AMP as a Sell but has Challenger Financial Services (CGF) as a Buy, whereas Merrills notes the company has not been able to achieve flows in line with its market share for quite some time. As a result, it rates the stock as Neutral, one of five such ratings in the FNArena database. This is matched by five Buy ratings. In contrast, AMP is rated as Buy or Accumulate four times, with four Hold ratings and two Sells. The database shows AXA is rated as Buy/Accumulate four times, with five Holds and one Sell.
The share prices of all three companies are higher today, as at 12.00pm AMP was up 22c at $10.20, AXA was 15c higher at $7.18 and Challenger was 8c stronger at $4.79.