Calastone’s latest fund flow data has revealed that Australian investors became net sellers of equity funds for the first time since the firm began keeping records in 2019, redeeming US$724 million in 2023.
“Despite global and Australian equity markets performing well in the first half of 2023, investors only added cautiously between January and April, becoming net sellers for the rest of the year once the AI-fuelled tech rally lost steam and bond markets began to price rate cuts,” commented Marsha Lee, head of Calastone Australia and New Zealand.
“Even strong markets in December were not able to tempt inflows.”
However, Australians, alongside their global peers, were particularly keen to lock into high yields, which saw investment into fixed income increase fivefold in 2023 to US$3.1 billion.
“Australian investors have shown a very high conviction in fixed income funds,” Ms Lee noted.
The year 2023 also marked a profound change in investors’ attitude to ESG investments, with Australians redeeming US$292 million from ESG equity funds versus US$425 million from a comparatively larger market of non-ESG funds.
Ms Lee said the firm’s data has identified an increased focus on selling, particularly due to the sizeable redemptions from smaller pools of ESG funds relative to non-ESG counterparts.
“The backlash reflects global concerns over greenwashing and growing awareness that ESG offerings don’t always meet the values and concerns of all investors; 2023 was the first year, since we started tracking flows in 2019, that non-ESG equity funds have attracted more capital than ESG.”
Global figures present different picture
Globally, equity funds suffered outflows of US$7.1 billion in 2023 – half of the $13.3 billion that drained from equity funds in the year prior.
With all markets but Hong Kong experiencing equity fund drainage, Calastone identified the phenomenon of two consecutive years of global outflows as “unusual”.
Ms Lee said: “While geopolitical uncertainty hangs heavy, the promise of higher yields and a favourable capital appreciation outlook proved irresistible around the world.”
Moreover, US$22 billion globally poured into fixed income funds on the back of anticipated peaking interest rate cycles as central banks signal a less hawkish stance.
Leading this sentiment reversal from 2022, according to Calastone, were investors in Hong Kong, Europe, and Taiwan.
Index tracking funds were also strongly back in favour in 2023, attracting inflows of US$20.1 billion, while active funds shed US$272 billion.
In contrast, both strategies saw outflows in 2022, more so for active funds.
However, 2021 was an outlier for active equity funds, which ballooned to inflows of US$40.3 billion, attracting more than three times the flows to passive equity funds that year.
According to Ms Lee, these figures signify that passive funds are once again in the ascendancy, bringing more pressure on fees as investors demand more “modern” investment experiences.
“Over the last five years, passive funds are well ahead, attracting US$53 billion versus the US$1.7 billion that has flowed to active funds. Removing friction, time, risk and cost remain critical objectives for fund managers in their quest to compete for capital,” she said.
