Australian bond ETFs recorded $905 million in inflows during the third quarter, an increase of 12 per cent compared to Q2, new data released by the ASX and Vanguard has revealed.
This was the highest level of inflows seen by any asset class during the quarter and came as investors allocated more of their funds to safe havens, such as bonds, amid rising interest rates and inflation, as well as weaker economic growth and fears of a recession.
Domestic equity ETFs received $805 million in inflows — 53 per cent lower than the previous quarter — while international equity ETFs received $814 million in inflows, up 66 per cent.
“Investors have been tested by the unusual positive correlation between bonds and equities this year but there’s good indication that this lockstep is ending. Bonds will continue to be an effective portfolio diversifier and resume their role as a long-term source of income given the rise in interest rates,” said Vanguard’s head of ETF capital markets, Asia-Pacific, Minh Tieu.
“While you can’t escape talk of recession, the best thing investors can do at present is to tune out the noise and focus on meaningful portfolio diversification. Financial markets are forward-looking and have likely already priced in the threat of recession so there’s little value in attempting to time markets based on daily commentary.”
Global bond ETFs saw $50 million of inflows during Q3, reversing the negative flows of $36 million seen in Q2. Meanwhile, diversified/multi-asset ETFs recorded a 16 per cent increase in inflows to $228 million.
Mr Tieu noted that interest in diversified ETFs has increased steadily among investors seeking broad diversification across asset classes and regions tailored to their risk profile.
This is consistent with what we typically see — a surge in diversified ETF flows when markets are particularly volatile as investor confidence drops in selecting individual investments,” he said.
“Diversification is therefore a good tonic for uncertainty. Our long-term outlook for fixed income and equity markets has improved, and if history is any indication, investors who own a balanced portfolio may be rewarded for their patience in due course.”
Overall, the Australian ETF market expanded by $2.4 billion or 2 per cent in Q3 with $121 billion in assets under management (AUM) as of the end of the quarter.
