The finding has come from Calastone, in its first quarterly Fund Flow Index, analysing the trades investors placed in Australia’s managed funds.
Ross Fox, head of Australia and New Zealand at Calastone commented almost every trade in Aussie mutual funds passes through the network, leaving it “uniquely placed to take the temperature” of local investors.
Equity funds gained $3 billion in new capital in the first quarter of the year, almost half of it in March alone.
Calastone reported Australians are so bullish that they added more capital to equity funds in February and March this year than they did for all of 2019.
The report has attributed a score measuring the sentiment of investors, the FFI, which compares the net inflow or outflow to the total turnover (the combined value of redemptions and applications).
The more buys outweigh sells, the closer to 100 the index will score the inflows. If buys equal sells, the score is 50.
Calastone’s FFI for equity in Australia for the last six months has averaged 60.1, supposedly an “extremely high reading” for an asset class as large and well established as equity funds.
In contrast, the UK score has been around 53 for the same period, which is considered positive for local equity funds.
“The government’s stimulus measures have provided unprecedented support to the Australian economy while the Reserve Bank’s quantitative easing has suppressed interest rates to record lows,” Mr Fox said.
“With authorities all around the world pursuing similar policies, the resulting stock market boom has sucked in massive amounts of new capital to equity funds.”
Aussies were noted to have especially favoured global equity funds and funds focused on Australian equities. Specialist sector funds and emerging markets have also seen good demand, while investors were seen to consistently withdraw money from equity income funds, which had been hit by slashed dividends.
Sell orders for equity income funds had outgunned buy orders by more than 2:1 since April last year. Calastone reported consistent outflows for nine consecutive months by the end of March.
Australian investors have shunned European equity funds too, although on a smaller scale.
Mr Fox commented the preference for global and Aussie equity funds reflects investors believe the country will join the global economic leaders, as the pandemic winds to an end.
“Booming commodity prices that are especially positive for Australian share prices and the economy here are clear evidence that this judgement is already proving right,” he said.
“The sharp increase in the Australian dollar over the last year is also a vote of confidence in the country’s near-term prospects.”
Calastone said it has also seen evidence of greater switching between funds in recent months, with turnover rising to more than a third (35 per cent) higher on average than it was in 2019.
In March 2021, turnover reached a record $7 billion.
Mr Fox referred to a “rotation in equity markets”, as bond yields have risen sharply.
“Big tech has come off the boil as its jam tomorrow valuations get impacted by higher long-bond yields, while stocks typically considered value like mining companies have proven more attractive again,” he said.
“All this is driving higher trading volumes in funds as investors switch from one investment style to another, rather than simply adding new cash to their holdings.”
Sarah Simpkins
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
You can contact her on [email protected].
