AMP Limited's (ASX: AMP) share price has rallied 22.5% since the start of 2014 providing shareholders with a hefty outperformance compared with the S&P/ASX 200 Index's (Index: ^AXJO) (ASX: XJO) return of 3%.
The jump in share price would appear to be an acknowledgement, by investors, that the issues facing the insurer's Wealth Protection business are not insurmountable, are being attended to and will ultimately be overcome.
The change in investor focus is important as the Wealth Protection business is just one of a number of profit drivers for AMP. There are in fact a number of strings to AMP's bow including its massive funds management business and its huge financial adviser network. The higher claims and lapses sustained in the Wealth Protection business have certainly affected profits but its market leading position in all divisions would suggest the long-term outlook for AMP is reasonable.
The Chairman stated at the recent Annual General Meeting that the strategy currently being implemented at AMP would "drive stronger profitability in our business, improve our return on equity, be reflected in our share price and ensure we deliver on our promises to our customers and to our shareholders." If this can be achieved then the recent rise in AMP's share price would look to be well and truly justified.
Once a stock has been re-rated it is often too late to buy – the opportunity has been missed – and the future growth is reflected in the share price. Unfortunately hindsight isn't all that useful when investing!
