Australian fixed income fund inflows fell 95% in 2022

Oksana Patron

25 January 2023

Australian investors sharply reduced their subscriptions to managed funds in 2022, according to the latest Fund Flow Index from Calastone, as inflation and higher interest rates were negatively impacting investor enthusiasm across all asset classes in 2022.

According to data, fixed income fund inflows shrank 95% from $10.54 billion in 2021 to $562 million in 2022 while Q4 bond inflows recovered somewhat after market volatility from mid-August to September.

Equity fund inflows fell by three fifths in 2022 to $5.74 billion, but Q4 was down 90% year-on-year  active equity fund inflows fell 74% in 2022.

Following this, Q4 saw first outflows from domestically focused equity funds since onset of pandemic.

The environmental, social, governance (ESG) equity funds remained in a relative bright spot – in 2022 inflows fell by less than a fifth compared to three quarters for non-ESG equities.

According to Calastone, in the first half of the year, Australians withdrew $1.45 billion from fixed income funds amid growing inflation and falling prices of both corporate and government bonds.

Also, there was premature optimism in July and the first half of August that saw a big recovery in inflows quickly turned sour when global bond markets were hit by a surge in yields in the latter part of the third quarter.

Over the full year, inflows to fixed income funds were down 95% from $10.54 billion in 2021 to $562 million.

“Yields on fixed income funds are looking significantly more attractive in the wake of 2022’s bond market declines. Investors have also recently begun to hope that the interest interest-rate tightening cycle may be nearing its peak both in Australia and overseas,” Teresa Walker, Managing Director of Australia and New Zealand at Calastone said.

“These two factors have tempted them back into fixed income funds in the last few weeks of 2022. There is enormous uncertainty over the future course of interest rates and of economic growth around the world, however, so we may yet see sentiment turn bearish again in the coming months.”

2022 also saw investors add far less cash to their managed equity funds – down 62% to $5.74 billion, though this decline was from the exceptionally high level seen in 2021, according to Calastone’s data.

The drop in the net inflow was driven much more by a dearth of buyers (orders fell by 15%) than an increase in selling (orders rose only 7%).

As far as Q4’s outflows from domestically-focused funds was concerned, this was the biggest change in sentiment in the fourth quarter.

“Australia-focused equity funds suffered outflows of A$143m in Q4, the worst reading since Q2 2019. Nevertheless, every geographical category of equity fund saw outflows in the fourth quarter, except for global funds, whose A$256m inflows were also at their lowest since the onset of the pandemic in early 2020. Almost three quarters of that Q4 global inflow was devoted to funds with an ESG mandate,” the firm said.