Ameriprise Financial (AMP 1.05%) had a good run in 2020, outperforming the S&P 500 with a total return of 19%. Some may find this surprising considering that most large financial-sector stocks were in negative territory for the year. But as one of the largest wealth managers in the U.S., Ameriprise's services were in high demand due to the period's high volatility.
The company finished the year strong, beating analysts' estimates in the fourth quarter with year-over-year gains in revenue and adjusted earnings. Can it keep the momentum going in 2021?
All business segments posted Q4 revenue gains
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While Ameriprise's primary source of revenue is its advice and wealth management business, it also makes money from its asset management and retirement and protective solutions arms. The company offers asset management through its Columbia Threadneedle Investments subsidiary, and annuities and insurance through its retirement and protective solutions group.
The company reported an 8% increase in adjusted operating earnings in the fourth quarter to $4.53 per share on $559 million of adjusted operating earnings. Ameriprise made a point of specifying those adjusted earnings because its GAAP (generally accepted accounting principles) results were "negatively impacted by market changes that affected credit spreads and the valuation of derivatives," the company said in its earnings release. "The reduction in short term interest rates impacted adjusted operating earnings by $303 million in 2020."
Ameriprise generated $3.1 billion in adjusted operating revenue -- a 3% increase year over year. About $1.8 billion of that came from advice and wealth management, a 4% increase that was driven by an 82% rise in wrap account net inflows to $7.9 billion. Wrap accounts are investment portfolios that are professionally managed for a fee.
"This was another record for us and a great indication of our excellent client, advisor engagement, and focus on growth," said Chairman and CEO James Cracchiolo on the fourth-quarter earnings call. Total client assets in this segment of the business grew 14% to a record $732 billion. It speaks to the company's status as an industry leader in wealth management that more funds flowed into it during a volatile year.
The asset management business's revenue jumped 4% year over year to $798 million and assets under management increased 11% to $547 billion. The company had $7 billion in net inflows, up from $3.3 billion a year ago. Those inflows were driven by the retail funds segment.
Also, the retirement and protection solutions business, which is the insurance and annuities business, saw a 2% increase in revenue to $799 million. While the number of life insurance claims was higher due to COVID-19, the financial impact was limited as a major portion of the mortality risk was reinsured. Further, sales of variable annuities increased by 20%. Annuities without living benefit guarantees accounted for about 60% of variable annuity sales. This trend should continue, as Ameriprise plans to shift to lower-risk products that don't have living benefit guarantees.
Acquisition mode?
Ameriprise is well positioned for another strong year. All three of its businesses should benefit from the expected acceleration of economic growth, particularly its wealth management business, as continued market uncertainty drives investors toward trusted institutions.
In addition, the company is flush with cash. Its largest business segment, advice and wealth management, has $41.5 billion on the books, up from $32.9 billion a year ago. It may invest some of that -- the word is that it's one of the suitors angling to buy Wells Fargo's asset management business. Such an acquisition would be great for Ameriprise, bulking up its asset management business and giving it added scale that would help it compete with the larger players.
But even without it, Ameriprise has consistently produced double-digit percentage annual earnings gains over the past decade and is well positioned to keep doing so. Plus, its return on equity of 26.1% is excellent, which means the company is very efficient in generating profits. It's definitely a stock to consider adding to your portfolio.
