Inflows to Australian equity exchange traded funds (ETFs) rose 57% quarter-on-quarter to $1.7 billion, according to Vanguard, as investors sought familiar domestic names in an uncertain environment.
According to data released by the Australian Securities Exchange and Vanguard, industry assets under management dropped almost 10% from $132 billion to $119 billion as inflation and interest rate uncertainty dampened returns.
Vanguard Australia’s head of ETF capital markets, Asia-Pacific, Minh Tieu, said: “The fall in industry AUM is no surprise given the level of volatility plaguing global markets this year, but we’re encouraged to see net inflows are still positive – a sign that most investors are still relatively undeterred and remain focused on their long-term goals.”
However, Australian equity ETFs were popular with the asset class seeing a significant uptick with $1.7 billion in inflows in Q2, up 57% quarter on quarter. Conversely, international equity ETF flows weakened, attracting $489 million, down 70% quarter on quarter.
“Australian equities saw significant demand this quarter as investors flocked back to familiar names. However, it’s a timely reminder that diversification not only across asset classes but regions too is important – no one country is free of economic or market risk, and there’s opportunity for investors to mitigate divergences in global economic momentum through international securities,” Tieu said.
Australian fixed income ETFs saw a resurgence amidst rising interest rates in Q2, recording $806 million in inflows, a 148% increase from Q1.
Cash ETFs continued to see outflows in Q2 with -$313 million, down from -$555 million in Q1, as investors sought higher returns in other fixed income products. Global fixed income ETFs too saw outflows with -$36 million, down from $278 million in Q1.
“This past quarter has seen much debate about the merit of bond allocations, but investors will do well to recognise joint declines in equity and bonds are rare and typically brief. The diversification benefits of bonds in the long-run will still outweigh any short-term downturns,” Tieu said.
“An uptick in fixed income flows suggest investors are also capitalising on the higher yields to be delivered by newer bonds as a result of recent rate hikes – a welcome boost for those retired or approaching retirement”.
Source: Vanguard
