Australian investors are pulling money from Australian shares in favour of fixed income, despite a relatively strong market performance, according to Morningstar.
The research house found that investors withdrew $9.65 billion from Australian share funds over 2012, or 9 per cent of assets.
"It is somewhat tied to investor sentiment, so when times are good and the outlook is rosy investors will tend to prefer growth assets with the equities but when the outlook isn't as great, investors do tend to become a bit more risk off," Morningstar fund research analyst Darren Cunneen told InvestorDaily.
"Investors have been paying a lot of attention to the headline news - things haven't been great in Europe [and] there was the pending US fiscal cliff, so I think investors were reacting to that, pulling money out of Australian equities.
"It's also affected global equities but not to the same extent."
The global managed fund industry increased by 3.9 per cent on the back of organic growth, but the sector fell short of the inflows seen in 2009 and 2010.
Australian investors tended to follow global trends over the 2012 full year, with an asset preference towards the bond market.
However, diversified fixed interest funds garnered over $2.93 billion over the year as investors sought to mitigate the risk in the market.
"Fixed income funds were pretty much flavour of the year - investors are clearly preferring the perceived safety of the asset class," Mr Cunneen said. "However, we have seen a shift in investor preferences.
"So investors have been coming out of this more Australian focus and they've been going into more diversified vehicles."
Investors are spreading their risk further across the bond universe and taking bigger bets in particular areas.
While there are early signs of recovery and increasing investor interest in the equity market, Mr Cunneen said continuing uncertainty in global markets makes it difficult to predict where inflows will be seen.
"Obviously sentiment has picked up," he said. "I think investors are just unsure at the moment so it is rather difficult to predict flows."
