Investors allocated a record $6.26 billion to managed fixed income funds in the first half of the year, according to new Australian fund flow data from Calastone.
Looking at the prior corresponding period, this was almost three times more than the $2.21 billion garnered in 1H23 as investors increasingly sought capital safety and strong yields.
“The ongoing flight to fixed income among Australian investors aligns with global patterns we’ve seen across our network, reflecting a widespread preference for stable, income-generating assets amid market volatility and economic uncertainties, likely magnified by higher local costs of living,” said Marsha Lee, managing director Australia and New Zealand at Calastone.
According to the data, $3.44 billion of fixed income flows hailed from the June quarter, although flows began to slow towards the end of the half-year. Unpacking this, Calastone explained that inflows swelled to $1.41 billion in May before halving to $750 million in June as some central banks began to cut rates.
“Away from fixed income, net flows have remained relatively muted as perceivably riskier assets stay sidelined until central banks signal a return to looser monetary policies,” Lee said.
Namely, equity funds endured their worst quarter on Calastone’s record, shedding $2.23 billion in Q1 before recouping $720 million in April as investors seized on market dips.
However, May and June outflows diminished these gains, with the segment being down $2.19 billion at 30 June.
Lee explained that despite seeing record outflows in Q1, trading in equity funds remained very active throughout 1H 2024, with gross turnover notably higher than for fixed income funds.
“This shows that investors are actively allocating capital and that equity funds remain dominant in portfolios,” she said.
In spite of this, fund outflows continue to characterise this segment of the market, as Calastone revealed in its full-year 2023 data that Australian investors became net sellers of equity funds for the first time since the firm began keeping records in 2019, redeeming US$724 million in 2023.
“Despite global and Australian equity markets performing well in the first half of 2023, investors only added cautiously between January and April, becoming net sellers for the rest of the year once the AI-fuelled tech rally lost steam and bond markets began to price rate cuts,” Lee said at the time.
Mirroring 1H24’s fixed income outlook, Australians were particularly keen to lock into high yields last year too, with investment into fixed income increasing fivefold in 2023 to US$3.1 billion.
The bigger picture
Overall, local investors added $1.3 billion into Australian unlisted managed funds in the first half of the year.
After a bearish first quarter for Australia’s managed funds, which saw outflows of $1.92 billion, Q2 tipped the sector back into inflow territory with funds gaining $3.21 billion during the quarter.
This, Calastone noted, was the highest quarterly allocation since 3Q23.
According to the firm, 1H24 flows were a marked improvement on 2023, which saw managed funds shed $4.72 billion in the first half of 2023 before recovering $4.91 billion in the second, mostly reflecting rising demand for fixed income funds.
Across the pond, investors in Asia have shown “cautious optimism” in returning to the market, with net inflows in 1H24 across all asset class fund categories reading at more than 1.5 times the total recorded in all of 2023.
The outlook for equity funds also looks to be on the upswing in Asia, Calastone revealed.
Namely, the first quarter of 2024 started with net outflows totalling US$439.7 million, continuing a trend of net redemptions and risk-off positioning by investors in Asia that started in April 2023, but May and June recorded the first months of net inflows for fund managers in more than 12 months.
“In the current environment, fixed income fund managers have been a clear beneficiary of capital flows over the last 18 months, but we are starting to see flows broaden out back into equities as the ‘fear of missing out’ grows with global stocks grinding higher,” Justin Christopher, head of Asia at Calastone, said last month.
