Generation Rent

A report by AMP says a major demographic shift in the US has contributed to a steady decline in home ownership since the Global Financial Crisis (GFC), with Generation Y dubbed Generation Rent as millennials delay purchasing a home in the suburbs in favour  of renting in the urban core.

A new AMP Capital whitepaper, Generation Rent, explores this trend, the  implications for real estate investors and the opportunities within the US apartment REIT sector.

AMP Capital Client Portfolio Manager for Global Listed Real Estate and report author Chris  Deves said: “The greater propensity for millennials to rent isn’t necessarily a surprise.  After all, this is the same generation that pioneered the ‘sharing economy’, a collaborative approach to consumption, which draws heavily  on the notion of renting.

“Millennials are opting for proximity to nightlife, restaurants and the workplace along with  access to shared spaces and amenities, which is translating into greater demand for rented apartments in the urban core.  As a demographic cohort, the  strong willingness of millennials to relocate in the pursuit of new career  opportunities necessitates flexibility and mobility, which is also more  conducive to renting over owning.”

The paper shows this is an important tailwind for US apartment REITs, which  make up roughly 8 per cent of the global listed real estate benchmark or more  than US$100 billion of equity market capitalisation.

“On a  through-cycle basis, this shift is a positive for residential landlords and, in  turn, a positive for investors in the listed institutional apartment operators,  which have asset portfolios with meaningful exposure to key urban centres.

“Apartment  REITs are generally high quality and consolidation in the sector has left a set  of large, well-capitalised companies with seasoned management teams, making  them attractive for real estate investors with a long-term investment horizon,”  Mr Deves said.

Mr Deves notes that millennials won’t, however, rent forever.  He said: “The  American dream of home ownership is not dead and buried.  Gen Y are just  as likely to head for the suburbs as previous generations, and starting a  family is often an important catalyst.  The key difference is that we are  seeing this occur increasingly later in life.

“Cyclical affordability issues and demographic change has and will support demand for  apartment rentals in city centres.  During the property cycle, the US  apartment REITs should therefore be in a stronger position to push rents, and quality management teams with insight into the needs of millennials will be  best placed to deliver value for investors of all sizes.”

While the story is similar for Australian millennials, investing in the US is the best way to play this trend for local investors as it offers the largest, highest quality, and most liquid set of listed apartment landlords.

Mr Deves said: “Australian investors should consider a global strategy for listed real  estate in order to access these kinds of thematics, which may not be as readily  investible in their local market.  A global approach also offers geographic diversification for the real estate portfolio.”


A disconnect between the growth objectives and asset allocation of SMSF trustees

Self-managed superannuation fund (SMSF) trustees have high growth expectations for the next 12 months yet as many as 55 per cent have moved to a more defensive asset allocation amid continuing market volatility, according to AMP Capital.

Statistics from AMP Capital’s latest Black Sky Report show that while SMSF trustees expect a 10.9 per cent return on their portfolio this year (6 per cent capital and 4.9 per cent income), only 18 per cent of trustees have made changes to position their portfolio for growth.  This is, however, an increase of five percentage points from 2015.

Further to this, nearly half of SMSF trustees surveyed for the report say their aim is to have a fully diversified portfolio yet more than 50 per cent of their portfolio is invested in just one investment type outside of managed funds.

AMP Capital Head of Self-Directed Wealth and SMSF Tim Keegan said: “If trustees continue to be exposed to significant portfolio concentration risk and remain in more defensive assets without seeking financial advice, they may struggle to achieve their retirement goals.”

AMP Capital’s Black Sky Report is developed each year to provide a snapshot of trustee investment trends.  It also helps to arm financial advisers with insight and knowledge of where SMSF trustees are looking for specific advice.

The 2017 report has identified the biggest investment challenges for SMSF trustees as market volatility (according to 18 per cent of trustees surveyed), investment selection (11 per cent) and regulatory changes (10 per cent).

Mr Keegan said: “It’s clear that many SMSF trustees need help especially around portfolio construction and understanding the regulatory changes that are coming into play.  With nearly 60 per cent of SMSF trustees remaining open to using the expertise of a financial adviser, it’s clear this is a huge opportunity for advisers to tap into.”

The research also revealed that SMSF trustees continue to find managed funds attractive, with 47 per cent each investing approximately $280,000 in them.  Thirty per cent of SMSF trustees made their most recent managed fund investment after receiving advice from their financial planner.

Mr Keegan said: “There is an increasing appetite among SMSF trustees to invest in Australian equity funds, both active and passive.  Advisers can be proactive in recommending high-quality unlisted managed funds as well as introducing trustees to the increasing range of active exchange traded funds that are now available on the market.”

Active ETFs replicate managed fund strategies but are able to be bought and sold during the trading day like any share on the Australian Securities Exchange.  AMP Capital, in alliance with BetaShares, launched three active ETFs during 2016: the AMP Capital Dynamic Markets Fund, the AMP Capital Global Property Securities Fund and the AMP Capital Global Infrastructure Securities Fund.

According to Mr Keegan: “With expectations for growth at an all-time high, regulatory uncertainty at its peak and new products such as active ETFs becoming increasingly popular, there is more need than ever for SMSF investors to turn to financial advisers for support.”

For the third year in a row, AMP Capital has released the Black Sky Report, which uses research and data from leading research house Investment Trends to uncover the latest SMSF investor trends and insights.

The research is based on a quantitative online survey of nearly 800 AMP Capital SMSF investors conducted by Investment Trends.  The 2017 Black Sky Report can be downloaded here.

AMP Bank Lifts Mortgage Rates

AMP Bank has announced changes to its mortgage lending rates for both owner occupiers and investors.

Effective 3 April 2017, variable interest rates for interest-only loans for existing customers will increase by 15 basis points for owner-occupied loans and 28 basis points for investment loans.

In addition, effective 31 March 2017 for new customers and 3 April 2017 for existing customers, owner occupied principal and interest variable rate loans will increase by 7 basis points. As a result, the AMP Bank Professional Pack owner occupied variable rate loan will increase to 3.92% p.a. for new customers for loans of $750,000 and above.

AMP Bank is encouraging customers with interest-only loans to switch to principal and interest repayments where appropriate. Until 30 June 2017, AMP Bank will waive the switch fee for customers moving to principal and interest repayments.

Sally Bruce, Group Executive AMP Bank commented: “We are managing our portfolio in a very active market but are committed to providing competitive rates to our customers to help them achieve their property goals.

“We also want to encourage customers to move to principal and interest repayments where it’s appropriate, as there is a great opportunity to access lower interest rates and repay your loan faster.

“Our decisions on rates are not taken lightly and reflect wholesale funding costs, the need to maintain a balanced portfolio and the market environment,” she said.

Housing crash ‘unlikely’: AMP Capital

From InvestorDaily.

Investors should expect house prices to fall between 5 and 10 per cent when the RBA begins tightening interest rates in 2018-19, but a 20 per cent ‘crash’ is unlikely, says AMP Capital.

In a note on Australian residential property, AMP Capital chief economist Shane Oliver said house prices are overvalued on most measures – but a disorderly crash is unlikely to eventuate.

The median multiple of house prices to household incomes in Australia is 6.6 times, Mr Oliver said.

By comparison, the same multiple 3.9 in the US and 4.5 in the UK. The Sydney multiple of price to income is 12.2 times, and in Melbourne it is 9.5 times, he said.

Looking at the ratio of house prices to rents adjusted for inflation, Australian houses are 39 per cent overvalued and units are 13 per cent overvalued, Mr Oliver said.

The rise in house prices has been accompanied by a surge in household debt prompted by low interest rates, he said.

But a general property crash in the vicinity of a 20 per cent fall would require one or more of three events to occur, Mr Oliver said: a recession, a sharp increase in interest rates and an oversupply of property.

Assessing each of the three criteria, Mr Oliver said a recession appears “unlikely”; interest rate hikes are not likely until 2018 and the RBA will take account of households’ greater sensitivity to higher rates; and a property oversupply would require the current construction boom to continue for “several years” (although he acknowledged the looming oversupply in some apartment markets).

As far as investors are concerned, residential property is “expensive on all metrics” and offers a very low net rental yield of 2 per cent or less, leaving investors “highly dependent on capital growth”, Mr Oliver said.

“But it is dangerous to generalise. Apartments in parts of Sydney and Melbourne are probably least attractive. [It is] best to focus on areas that have lagged behind.”

“Finally, investors need to allow for the fact that they likely already have a high exposure to Australian housing. As a share of household wealth it’s nearly 60 per cent,” Mr Oliver said.

Another Nail In The Investment Lending Coffin

AMP has announced it will no longer accept loan applications to refinance stand-alone investment property loans with investment property security as reported by Australian Broker.

Effective tomorrow, 16 February, the bank will also be increasing Investment Interest Only rates by 0.30%, and Owner Occupied Interest Only products by 0.30% per annum.

“We will no longer accept loan applications to refinance stand- alone investment property loans with investment property security. Refinances that include owner- occupied and investment properties remain acceptable, subject to security property values,” the bank said in the announcement.

Investment Principle & Interest products are also increasing by 0.25% pa, effective tomorrow (16 February).

Along with these changes the non-major has also announced notable credit policy changes. The maximum LVR for purchases of investment property loans is reducing to 70% (including LMI), while the credit card servicing rate for calculating loan serviceability will increase from 2.5% to 3% of the credit limit. This change impacts all new loans (owner occupied and investment).

“The changes announced today do not impact pipeline deals or our existing customers and there is no change for new owner-occupied principle and interest loans,” the statement said.

“These changes are being made after recent shifts in consumer behaviour and competitor activity in the property market.”

Sally Bruce, Group Executive AMP Bank commented: “We actively manage our credit policies to ensure we prudently manage risk and align with regulatory requirements.

“With sustained high levels of activity in the property market in 2017, we will continue to closely monitor developments and put measures in place to control and manage the future growth of our investment property portfolio,” she said.

AMP’s changes come following a similar crackdown on investment lending by CBA, last week.

SMSF contribution levels almost triple in response to super changes becoming law

AMP says SMSF trustees looking to make the most of the current rules have significantly increased contributions, according to the latest SuperConcepts SMSF Investment Patterns Survey.

In the December 2016 quarter contribution levels almost tripled, increasing by 181 per cent from $3,040 in the September quarter to $8,550.


The rise in contributions follows the Government’s confirmation that the proposed Super changes will come into effect on July 1 2017.

SuperConcepts Executive Manager Technical & Strategic Solutions Phil La Greca said the findings were not surprising and he anticipated contribution levels would continue to increase during the next two quarters due to the brief window of time to make large non-concessional contributions until 30 June 2017.

“The current non-concessional amounts apply for the remainder of this financial year and investors are taking advantage of the limited time available to them. We expect a continued uplift in the level of nonconcessional contributions in the lead up to July 1,” said Mr La Greca.

The current $180,000 after-tax contributions cap, and the three year $540,000 bring-forward rule remain until 30 June 2017.

Cash levels were also up in Q4 (from 18.1 per cent in the September quarter to 18.4 per cent in the December quarter).

Mr La Greca said it was likely the increased cash levels were related to the higher contribution levels being received.

The trend to invest through the use of exchange-traded funds (ETFs) continued to grow, with ETFs representing four per cent of all assets during the December quarter. ETFs were mostly used in the International Equity Sector, which represented 16.7 per cent of all international equity holdings.

The trend to use a limited recourse borrowing arrangement for property continued. The overall allocation to property loans increased to 81 per cent in the December quarter, up from 75 per cent the previous quarter. Meanwhile the number of financial asset loans decreased from 25 per cent to 19 per cent.

“The ATO’s safe harbour guidelines on related party loans explains the continued drop in the number of financial asset loans,” said Mr La Greca.

The quarterly SuperConcepts SMSF Investment Patterns Survey covers approximately 2,800 funds, a sample of SMSFs administered by Multiport (part of the SuperConcepts group) and the investments they held at 31 December 2016. The assets of the funds surveyed represent approximately $3.2 billion.

About SuperConcepts<
SuperConcepts 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 55,000 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


AMP Reports A Loss Of $344m

AMP reported their FY16 results today, a net loss of $344m compared with a profit last year of $972m last year. They also announced a share buy-back of up to $500m.  The final dividend was maintained at 14 cents a share, franked to 90 per cent making the FY 16 dividend 28 cents a share.

It is a complex business, with many moving parts, and an offshore expansion strategy in sharp contrast to the major retail banks!

The business took a hit from a $415 million loss in Wealth Protection reflecting negative claims experience and capitalised loss.

Underlying profit was A$486 million compared with A$1,120 million prior year, reflecting actions announced in October 2016 to stabilise Australian Wealth Protection.

The wealth management businesses performed better, (AMP Capital, AMP Bank and New Zealand).

International expansion in China, Europe and North America continues. China Life AMP Asset Management Company (CLAMP) is the fastest-growing investment manager in China, with assets under management (AUM) rising 55 per cent year on year.

They focusses on cost management: A$200 million, three-year efficiency program completed in 2016 and a new efficiency target set for 2017.

They have a strong capital position with A$2.3 billion surplus on 1 January 2017 following consolidation of life companies. Underlying return on equity 5.6 per cent, down from 13.2 per cent in 2015, reflecting Wealth Protection performance.

Business unit results

Australian Wealth Management
The impact of difficult trading conditions was partly offset by effective cost and margin management. AUM was up 5 per cent to A$121 billion following a strong end to the year. Total net cash flows of A$336 million (FY 15: A$2.2 billion) were lower, consistent with an industry-wide slow down amid market and regulatory uncertainty. Improving customer sentiment underpinned a lift in discretionary contributions in Q4 2016.

Targeted product enhancements supported strong cash flows on AMP’s flagship North platform, with net cash flows up 11 per cent on FY 15 and AUM up 30 per cent. Cash flows from AMP Flexible Super reduced as flows switched to North as expected. Corporate super cash flows were lower reflecting the lumpy nature of mandates. AMP’s developing omni-channel advice network, campaigns to capitalise on a more favourable market environment, corporate super pipeline and further product enhancements are expected to support cash flows in 2017 and beyond.

AMP deliberately reduced adviser numbers in 2016 by tightening the classification of authorised representatives. A higher-than-usual number of advisers also decided to retire or leave the industry in the face of challenging industry conditions and increasing education and professional requirements.

AMP Capital
AMP Capital’s strong performance reflected increased fee income driven by growth in real estate and infrastructure investments. Controllable costs increased as the business continued to invest in international growth and build its distribution capability.

External net cash flows were A$967 million (FY 15: A$4.4 billion) and were impacted by challenging market conditions in Australia and Japan, partly offset by good institutional flows into real estate and infrastructure asset classes. FY 16 finished with a strong origination pipeline, including A$3.1 billion of available investor commitments. In China, CLAMP’s AUM increased 55 per cent year on year.

Australian Wealth Protection
Performance was impacted by negative experience and the actions to stabilise the business announced in October 2016, including strengthened assumptions, which led to a one-off capitalised loss of A$484 million. Total experience losses for the year were A$105 million. Claims experience inQ4 2016, capitalised and other one-off losses, and the reduction in embedded value were all within guidance provided in October 2016. AMP group’s reported earnings were also impacted by aA$668 million charge for goodwill impairment as a consequence of declines in the potential recoverable amount of the Australian Wealth Protection business.

The consolidation of AMP Life and NMLA – a Part 9 transfer – released A$145 million in regulatory capital on 1 January 2017, while a reinsurance agreement for 50 per cent of the AMP Life portfolio (25 per cent of total exposure) released a further A$500 million of regulatory capital. These actions underpinned the board’s decision to return capital to shareholders through an on-market share buy-back. The process for a second tranche of reinsurance is now underway.

AMP Bank
Above system growth in residential mortgages at 13% and expansion in net interest margin contributed to 15 per cent growth in operating profit.

The bank is investing in operational capacity to support continued growth, with retail mortgage sales via the aligned adviser channel up 24 per cent on FY 15. The bank’s cost to income ratio fell to 29 per cent as the bank benefitted from increased scale.

New Zealand Financial Services
Performance was driven by improved margins in wealth management and experience profits in the life insurance business. Excluding the effect of the loss of transitional tax relief, operating earnings increased 14 per cent, with tight cost management improving the business’s cost to income ratio. AUM increased 9 per cent, reflecting positive market performance and net cash flows.

Australian Mature
Operating earnings of A$151 million reflected anticipated portfolio run off and lower bond yields, partly offset by cost control and better persistency

Capital management

AMP continues to actively manage capital with Level 3 eligible capital resources A$2,195 million above minimum regulatory requirements at 31 December 2016, up from A$1,917 million at 1 July 2016. Effective 1 January 2017, the consolidation of AMP’s two life companies (AMP Life and NMLA) increased excess regulatory capital by a further A$145 million.

The strengthened capital position also reflects the execution of the reinsurance agreement.

Capital released from reinsurance provides the capacity for capital to be returned to shareholders.An on-market share buy-back of up to A$500 million will begin in Q1 2017.

A FY 16 final dividend has been maintained at 14 cents per share, franked at 90 per cent, with the unfranked amount being declared as conduit foreign income. The total FY 16 dividend is 28 cents a share. This reflects the largely non-cash nature of the one-off losses incurred in Australian Wealth Protection. AMP’s dividend policy target range is 70 to 90 per cent of underlying profit. The dividend reinvestment plan will be neutralised by on-market purchases.

Cost program

AMP’s three-year business efficiency program completed in FY 16 with A$200 million in pre-tax recurring run rate cost benefits delivered in line with expectations.

AMP is committed to a 3 per cent reduction in controllable costs in 2017, excluding AMP Capital and allowing for continued investment in growth businesses and channel experiences. AMP Capital will be managed on a cost to income basis, which is appropriate for the profile and growth ambitions of this business.



When Size Matters: $200,000 threshold key to SMSF performance

AMP says large SMSFs perform better than small SMSFs because they are more diversified, operate more effectively and have longer experience in the sector.

This is according to new joint research from SuperConcepts and the University of Adelaide’s International Centre for Financial Services.

Released today, the new research report –When size matters: A closer look at SMSF performance – looks at fund characteristics that contribute to superior performance of SMSFs.

SuperConcepts General Manager of Technical Services and Education, Peter Burgess, said the research revealed when a fund reaches a balance of $200,000, the benefits of investment diversification start to kick in.

“Our research shows size matters with large SMSFs performing better than small ones. Performance, diversification and expense ratios continue to improve as a fund increases in size,” said Mr Burgess.

Professor Ralf-Yves Zurbrugg from the University of Adelaide said there is a “double whammy” for those SMSFs with balances under $200,000.

“These funds not only have much larger expense ratios compared to larger funds, but they also lose out due to their inability to achieve adequate levels of investment diversification,” said Professor Zurbrugg.

Large funds are more efficient in their operation, in terms of the direct expenses involved in managing an SMSF. When a fund reaches $550,000 under management, its expense ratio dips below two per cent and diversification and performance is comparable to the largest funds.

When size matters: A closer look at SMSF performance is the first in a series of reports to be released by the SMSF Centre of Excellence which aims to examine the relationship between fund activity and performance, diversification and performance, and the relationship between trustees seeking advice andperformance.

Using data from over 20,000 SMSFs from 2008/09 until 2014/15, the report examines how fund size affects performance as well as other fund characteristics including investment diversification and expense ratios. SMSFs in the data set have outsourced their administration, and possibly other aspects of their operation to an external party.


AMP Bank increases variable interest rates on investment loans

AMP Bank has announced an increase to  variable interest rates on residential investment loans of 15 basis points,  effective 6 January 2017 for new customers and 9 January 2017 for existing  customers.

The AMP Professional Pack Home Loan  variable interest rate for investor loans $250,000 and above will increase from  3.99 per cent to 4.14 per cent per annum.

There are no changes to variable  interest rates for owner occupied loans.

Sally Bruce, Managing Director AMP  Bank commented: “We remain focused on supporting our customers with competitive  interest rates.

“Changes to our home loan rates take  into account increasing wholesale funding costs and the need to maintain a  balanced portfolio in line with regulatory guidelines,” she said.


AMP realigns business to focus on performance and growth

AMP  Limited today announced a series of changes to its senior leadership team to create clearer accountability for driving short-term business performance and delivering longer-term growth.

AMP Chief Executive Craig Meller said the new group structure delivers sharper  focus on performance in the core Australian businesses, drives efficiency  across the group and provides increased emphasis on the growth drivers in the portfolio.

amp-struct1The key changes to the group leadership team are:

  • Wealth Solutions and Customer: Paul Sainsbury will lead a new division bringing together customer, wealth  management and product solutions.
  • Advice and New Zealand: Jack  Regan, currently Managing Director New Zealand, will lead an expanded  portfolio, assuming responsibility for AMP’s advice businesses.  Mr Regan will retain responsibility for the  management of AMP New Zealand.
  • AMP Bank: Sally Bruce will join the  group leadership team as Group Executive, AMP Bank.
  • Insurance: Megan Beer will be appointed Group Executive, Insurance, bringing single point accountability to the stabilisation and management of the insurance business.
  • Technology and Operations: Craig Ryman will become Group Executive, Technology and Operations, assuming an expanded portfolio combining IT and operations.
  • Enterprise Risk Management: Saskia  Goedhart, Chief Risk Officer, will join the group leadership team.

The leadership changes are effective 1 January 2017.  Management of the other divisions remain  unchanged.

As a  result of the changes, three executives will leave the organisation: Pauline  Blight-Johnston, Group Executive, Insurance, Super and Risk Management; Rob  Caprioli, Group Executive, Advice and Banking; and Wendy Thorpe, Group  Executive Operations.  Ms Thorpe had  previously advised her intent to retire and will leave the business in early  2017 after helping to ensure the smooth transition of the operations  function.  Ms Thorpe will also shortly  join the board of AMP Bank as a Non-Executive Director.

“I would like to thank those  executives who are leaving the organisation for their contribution to AMP and  to the transformation of our core Australian business during the past three  years.  I wish each of them well for the future,” said Mr Meller.