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Taking a closer look at AMP Capital

AMP (ASX: AMP) is well known to many Australians. Due to its earlier life as a Mutual Society that demutualised and listed on the stock market in 1995, it is one of the most widely held stocks with around 870,000 shareholders.  Add to this over 5 million customers and a market capitalisation of $14.5 billion and AMP is pretty much a household name.

While AMP is often referred to as an insurer, which harks back to its Mutual days, a more accurate term is wealth manager. The business is broadly divided into two major divisions. The AMP Financial Services division includes financial planning, wealth advice, superannuation, life insurance and banking. This division is by far the largest contributor to profits within the AMP Group.

The second division is AMP Capital, which houses the investment management team and managed fund products. With funds under management (FUM) of around $130 billion it is one of the largest players in this space, competing with the likes of the ‘Big 4’ banks, Macquarie Group (ASX: MQG), numerous public and industry super funds and the multitudes of smaller fund managers and self-managed super funds.

While AMP Capital contributes only around 10% of profits to the overall group, it is still important to analyse. Given how many investors have money managed by AMP Capital, there are likely plenty of Fools with a vested interest too!

As an investor, when considering AMP’s investment merits it’s obviously important to consider the future potential of AMP Capital and in turn the funds’ performance against benchmarks. Undertaking this research also provides an opportunity to look at the stocks the AMP funds own. The first thing to notice is the lack of any significant outperformance by most of the funds.

One of AMP’s best performing funds over the past 12 months has been the Australian Equity Value Fund. It returned 22.9% after fees, which in absolute terms was great but relative to benchmark, it was flat. What’s more, investors were charged 1.9% in management costs! A look at the fund’s top 10 holdings show it achieved this performance by skewing the portfolio towards the ‘blue chip’ stocks. Its current top 3 holdings are: BHP Billiton (ASX: BHP), National Australia Bank (ASX: NAB) and ANZ Bank (ASX: ANZ).

Foolish idea

Keeping an eye on what top performing funds are doing can be a good idea. There are no rules in investing that say you have to come up with a completely original investment idea every time you make an investment. Investment ideas can come from anywhere — a shop you frequent, a conversation you have on the bus, a newsletter article you read or a stock idea you get from a fellow investor.

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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