Australian managed funds suffered a significant decline in inflows last year, according to new data published by Calastone, as higher inflation and interest rates took hold around the world.
While falls were seen across all asset classes, Calastone reported that fixed income funds experienced the sharpest decline, with a 95 per cent drop in inflows over 2022 to $562 million.
Looking back on the year, the firm noted that investors withdrew $1.45 billion from fixed income funds, before “premature optimism” in July and early August spurred a recovery in inflows.
However, Calastone stated that this quickly turned sour when global bond markets were hit by a surge in yields towards the end of the third quarter. Sentiment then began to improve again, with Australian investors adding $824 million to their bond holdings during the fourth quarter.
“Yields on fixed income funds are looking significantly more attractive in the wake of 2022’s bond market declines,” said Calastone managing director of Australia and New Zealand, Teresa Walker.
“Investors have also recently begun to hope that the interest-rate tightening cycle may be nearing its peak both in Australia and overseas. These two factors have tempted them back into fixed income funds in the last few weeks of 2022.”
Ms Walker added that there is still “enormous uncertainty” regarding interest rates and economic growth, with a risk of sentiment turning bearish again in the coming months.
Turning to equity funds, Calastone observed a 62 per cent reduction in inflows compared to a year earlier, which it said was driven more by a lack of buyers than an increase in selling.
The third quarter accounted for nearly two-thirds of the net inflows seen over the course of the year before inflows sank to only $296 million in the fourth quarter, which Calastone said was down 90 per cent compared to Q4 2021 and the weakest result since Q1 2020.
“The improvement in sentiment among bond investors in Australia has not been matched by equity holders,” commented Ms Walker.
“Indeed, the much greater loss of confidence in equity funds in the fourth quarter compared to fixed income suggests investors are looking at bond funds as a relative safe haven. Q4 was the first time since Q1 2020 that fixed income funds have attracted more cash than equities.”
Australia-focused equity funds suffered outflows of $143 million in the final quarter of 2022, the worst result since Q2 2019. Calastone reported that every geographical category of equity funds experienced outflows during the quarter except for global funds, which saw $256 million of inflows, but this was still the lowest level of inflows since the beginning of the pandemic.
Inflows into ESG equity funds throughout 2022 fell by less than a fifth, according to Calastone’s data, compared to a decline of almost three quarters for non-ESG equity funds.
Investors were reported to have added $2.4 billion to their ESG equity holdings, with ESG funds accounting for two-fifths of 2022’s equity fund inflows.
Meanwhile, inflows to property funds plummeted 78 per cent over the year and mixed asset inflows were down by slightly more than three-fifths.
