Investors weren't thrilled by AMP Limited's (ASX: AMP) quarterly update but that's being brushed aside as the wealth management sector surges ahead on the back of expectations that the European Central Bank (ECB) will launch fresh stimulus measures.
Shares in AMP are trading 1.3% higher at $5.90 this morning even as it reported a halving in cash flow to $241 million in the September quarter.
The big drop isn't too much of a shock to the system as it is largely driven by the closure of its Genesys Wealth Advisers business that was announced in November last year, but the recent market volatility and impact of new regulations on the financial services industry also contributed to the weakness.
Further, the volatility and market weakness are blamed for the 3% quarter-on-quarter drop in assets under management to $111.1 billion.
AMP's leading wrap platform North also suffered a big 24% year-on-year drop in net cashflows to $1.1 billion and its Flexible Super business also suffered a drop in net cashflows due in part to superannuation to pension transitions.
On the bright side, AMP's Self-Managed Super Fund division saw a $478 million rise in assets under administration from the previous quarter to $19.4 billion. This business is well placed to grow further.
As I mentioned, investors aren't really paying attention to these negatives, although AMP shares are underperforming its peers.
The ECB's hint that it will pump extra liquidity into the financial system by year end to support waning growth and low inflation is taking centre stage as such stimulus measures have been a key driver for the rally in global equities as we emerged from the global financial crisis.
Injecting billions into markets through a quantitative easing (QE) program will undoubtedly give risk assets a big boost and listed wealth managers are typically the best placed to benefit from this thematic as rising markets and fund flows are the biggest drivers of profitability for the sector.
But it's wealth managers with more direct exposure to Europe that are leading the charge. UK-based Henderson Group plc (ASX: HGG) surged 4.8% to a two-and-a-half month high of $5.94, international fund manager Platinum Asset Management Limited (ASX: PTM) rallied 4.1% to $7.05 and UK-exposed BT Investment Management Ltd (ASX: BTT) jumped 5.1% to a record high of $10.40.
I am overweight on the sector as I believe there's more room for these stocks to climb, and this includes AMP despite its soft quarterly update.
But it's not only stimulus that will drive the sector higher. Strong corporate interest is another supportive driver for the sector and we are already seeing industry consolidation afoot.
