Calastone’s latest fund flow data has revealed that Australian-based managed funds experienced $2.80 billion of outflows in Q2, the highest level of outflows since the firm began keeping records nearly five years ago.
Investors abandoned managed equity funds at record levels during the quarter, according to Calastone’s data, with a total of $1.65 billion of outflows over the period, as investors fled to the relative safety of fixed income and cash.
This followed the $516 million of net outflows seen for managed equity funds during the first quarter, which had been the highest quarter for outflows since the start of the pandemic.
Global equity funds, which lost $1.52 billion over the second quarter, accounted for the bulk of the overall outflows for managed equity funds, while the outflows recorded for domestically focused Australian equity funds were more modest at $59 million.
Outflows were also seen for ESG equity funds, which shed $508 million during Q2, but Calastone noted that emerging market equity funds bucked the trend with $4 million of inflows.
“Global equity funds have borne the brunt of outflows as investors are losing confidence in the prospects for the global economy,” commented Teresa Walker, managing director of Australia and New Zealand at Calastone.
“Australia-focused funds have seen remarkably little selling yet this country is not immune to today’s global trend. The RBA has hiked rates aggressively to tamp down inflation and is content to generate Australia’s first recession in a generation (barring the initial COVID-19 shock) if it is necessary to achieve its ends.
“In the short term, banks, which dominate the ASX, benefit from rising interest margins, but recessions are costly for banks too if non-performing loans increase, so there is no particular reason to favour the Australian market more than those elsewhere at present.”
In contrast to riskier assets, fixed income funds experienced $582 million of net inflows in Q2 as investors turned their attention to attractive yields and potential capital gains in the asset class.
Over the first half of the year, Calastone reported investors had added $1.25 billion to their fixed income holdings but withdrew $2.16 billion from equities.
“Fixed income funds have not looked so attractive since before the global financial crisis. At the same time, the recession fears stalking equity and property markets are making investors nervous. The result is a flight to safety,” said Ms Walker.
“Short-dated fixed income funds currently enable investors to earn an income of 4.4 per cent or more at very low risk. Meanwhile, the 10-year Australian bond yield has jumped from 3.1 per cent to 4.0 per cent in three months.
“Fixed income funds which invest in longer-dated bonds like this now offer the chance to lock into the highest yields in years. They now offer both income today and the prospect of capital gains when the credit cycle turns and market interest rates fall back.”
However, Ms Walker also noted that inflows seen for fixed income funds had failed to offset the overall departure of capital from managed funds observed in the second quarter.
“Cash helps explain why. Cash savings rates are also at their most tempting in years – with some deposit accounts offering as much as 5 per cent. Investors are content to sit on the sidelines and take the interest,” she added.
Meanwhile, Calastone’s data indicated property and mixed asset funds suffered record outflows in Q2, shedding $173 million and $544 million, respectively.
Across the first half, investors were reported to have withdrawn $203 million from property funds and $655 million from mixed assets.
