Monthly bond fund flows turned negative across the Tasman for the first time in two years during a mainly risk-off quarter, according to new Calastone data.
The Calastone quarterly gauge found Australian investors put just A$60 million into fixed income funds overall in the first three months of this year with A$173 million of outflows in March – an event last seen at the onset of the COVID-19 pandemic in early 2020.
Teresa Walker, Calastone managing director Australia and NZ, said in a release: “Fixed income might normally be considered a safer haven in times of risk for equity markets, but the inflation shock associated with war-fuelled energy prices has compounded inflationary pressures already affecting the whole world.
“Even though inflation is much less of a problem in Australia than in other developed economies at the moment, it is stalking credit markets in 2022 – and hence fixed income funds which tend to invest across sovereign and corporate debt worldwide. This is making investors wary of bond funds.”
But the Calastone study also shows investors were in a generally cautious mood over 2022 to date as flows into share funds slowed considerably compared to last year.
Over the three months to the end of March, Australians invested A$1.2 billion into equity funds, well off the A$3.8 billion quarterly average of 2021.
Despite the anemic flows, investors favoured environmental, social and governance (ESG) labeled strategies over vanilla share strategies across the Tasman for the first time.
The Calastone quarterly Fund Flow Index found Australian investors plonked A$746 million into ESG share products in the first three months of 2022 compared to A$452 million in mainstream equity strategies.
As well as dropping bonds and leaning to ESG equities, Australian fund investors ramped up the home bias, allocating almost 80 per cent of new money to domestic equities against the three-year average of about a third.
“Australia-focused funds enjoyed inflows of A$931m (down by 25% compared to Q4 2021), while those investing overseas took in $327m, down 80% compared to Q4 2021,” the Calastone report says.
Meanwhile, both diversified funds and property strategies experienced a soft first quarter. Real estate quarterly fund flows sank to A$161 million in the March quarter versus the 2021 quarterly average of A$480 million.
“Commercial real estate has in the past proved a good hedge against inflation because rental prices rise over time. All other things being equal this should make it a relative safe haven in the current climate. Australia’s relatively low inflation means the problem is less salient in this country than in some others,” Walker said in the statement. “The drop in inflows may therefore reflect the overall reduction in risk appetite among investors in 2022 rather than singling out real estate in particular. This is evidenced by the increased reluctance to buy rather than any fear-induced increase in selling.”
The UK-headquartered Calastone provides messaging and automation services to the majority of the Australian fund and platform providers: in NZ the firm has also signed up most of the local platform players.