The recovery of inflows into equity and other growth-orientated managed funds which started towards the end of last year has faltered, with the second-consecutive quarter of slower growth.
According to the latest figures from Calastone, the global funds data network, net inflows for both Australian equities and Australian-domiciled global equities funds were, together, down about 20 per cent in the June quarter compared with the March quarter, which was in turn down significantly from the buoyant December quarter last year.
It looks like the money represented by most of the decline in growth for the June quarter has ended up in fixed income funds, which showed a corresponding increase. Growth rates for ESG funds, index funds and other specialist equity funds all declined over the June quarter compared with March. On a monthly breakdown, global equities net inflows picked up in June compared with May, as did ‘other’, but Australian equity funds growth continued to slow.
Real estate funds, which had performed relatively well against equities funds in the March quarter, declined again in the latest three-month period.
Ross Fox, Calastone’s head of Australia and NZ, said: “New Zealand’s stock market has not been immune to global trends, even though it has successfully resisted the virus.
“As global markets absorb the reality that the epidemic surging again in most parts of the world, fears for global growth are currently dampening enthusiasm for both our domestic equity funds and ones focused on overseas shares.
“New Zealand and Australia are especially vulnerable at present. With no natural immunity and very low vaccination rates the question of how to exit from isolation is a live one that Kiwi investors will have to wrestle with in the months ahead.”
Calastone pointed out in its report that despite the declines, a total net inflow of A$2.4 billion across the categories for the June quarter was still high at around double the average quarterly total since early 2019 and was more than more than three times higher than the same period in 2020.
The report says: “As the [June] quarter progressed, net buying of Australia-focused funds weakened with each passing month, while interest in funds focused overseas began to strengthen again.
“In June, net inflows to equity funds focused on Australian stocks had almost halved compared to March, driven by sharply increased selling activity rather than a fall in buy orders; sell orders reached a record A$959 million in June, while buying held steady.
“By contrast, having dropped significantly in the first few weeks of the second quarter, net inflows to funds focused on overseas equities were back in line with the average over last year by June.”
The loss of momentum for Australian assets was apparent in real estate funds too, which are mostly domestically focused. Inflows fell to A$115 million in June, their lowest level in 11 months, and 36 per cent lower than the average since July last year.
The 42 per cent quarter-on-quarter jump in net flows to fixed income funds in the June quarter, to a total of A$2.2 billion is a further indication of a more cautious approach.
Because the Calastone figures are based on real trading data, the aggregate reporting tends to be available sooner than for that provided to the market by the research houses.
Calastone’s Fox said that while it appeared that nervousness over the impact of the delta variant of covid initially prompted Australian investors to cut back on buying offshore-focussed funds in the June quarter, they increasingly cut back on Australian equities and real estate funds too.
He said: “Across the developed world vaccination programs have forged ahead in most cases far more quickly than ours has here. Having dodged the bullet in 2020, Australia is a sitting duck if infections take off before our vaccination rates catch up with our peers elsewhere.
“This has given investors pause for thought, evidenced by record sell orders in June. Given the benefits of diversification offered by global funds, it makes sense for Australians to spread their bets a bit.”
Fox said that Calastone was seeing similar investor nervousness in other countries. UK investors turned net sellers of UK-focussed equity funds in June, despite no evidence that delta-covid’s higher infections were leading to serious health consequences there, owing to extremely high vaccination rates.
“We do not want to get carried away and overstate the case. Aussie investors were still net buyers of funds in the second quarter, just with less enthusiasm than they have shown in recent months,” Fox said.
“The bigger picture suggests that the global economic recovery is strong, delivering positive earnings momentum for equities, both in Australia and abroad. If the current outbreaks are successfully controlled, there is no reason to expect a sudden rush for the exits over the quarter ahead.”
Greg Bright is publisher of Investor Strategy News (Australia)