New data from Calastone has revealed that inflows to managed equity funds during the first quarter of the year fell to $1.2 billion, down from a quarterly average of $3.8 billion during 2021.
Australia-focused funds recorded inflows of $931 million in Q1 2022, 25 per cent lower than Q4 2021, while funds investing overseas saw inflows of $327 million, down a staggering 80 per cent.
“Risk appetite globally has fallen during the first quarter as worries for the world economy and inflation have been compounded by the chilling economic effects of Russia’s attack on Ukraine,” said Calastone managing director of Australia and New Zealand Teresa Walker.
“This explains why inflows to equity funds have fallen. But the much smaller decline in inflows to Australian-focused equity funds reflects the strong commodity bias on the ASX.”
The firm said that, on average over the past three years, Aussies had directed a third of their newly invested cash to managed funds that only invest in domestic equities, however this proportion rose to 78 per cent during the last quarter.
February was the weakest month for equities with inflows of only $25 million, the lowest since June 2020, while inflows of $581 million were recorded in January and $592 million in March.
Fixed income funds saw inflows fall to just $60 million in Q1 2022 compared to $2.17 billion in Q4 2021, including inflows of $177 million in January and $56 million in February followed by outflows of $173 million in March.
“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,” said Ms Walker.
“Even though inflation is much less of a problem in Australia than in other developed economies at the moment, it is the bogeyman 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.”
Calastone also reported that inflows to real estate funds fell to $161 million in the previous quarter against a quarterly average of $480 million during 2021, which the firm said was driven by a drop in buying activity rather than an increase in selling.
“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,” Ms Walker said.
“Australia’s relatively low inflation means the problem is less salient in this country than in some others. 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.”
Jon Bragg
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.
