The fall in the Australian dollar has driven managed fund investors towards global equities with research finding more investors are likely to stay out of Australian equities due to sector biases and poor returns in the local market.
The research, released by the Colonial First State Global Asset Management (CFSGAM) in its Investor Insights report, found that when the Australian dollar dropped below parity with the US dollar in 2013 non-advised investors moved to international equities.
According to CFSGAM Senior Analyst, Economics and Market Research, Belinda Allen these investors have remained in international equities throughout 2014 with investors across all age groups expressing a preference towards international equities.
“When looking at global equities, the difference in equity preference is clear. With preference for Australian equities falling, there has been a clear and consistent uptick in applications for global equities, across all age groups,” Allen said.
“What is remarkable is that even over 59-year-olds, who typically are in or close to drawdown phase have been investing new funds in to global equities, which is in direct contrast to expectations.”
“The data suggests that this preference for local shares has waned with the fall of the Aussie dollar, and with good returns and diversification offered from global equities, a greater move to invest offshore is likely.”
CFSGAM measured the shift in sentiment and investments using the Equity Preference Index (EPI) which measure fund flow data of equity-based managed funds for non-advised investors who typically make discretionary decisions based on their own market views and levels of confidence about future returns.
Allen said despite the shift to global equities investors actually moved away from equities in general and the EPI retreated by 22 per cent in the December 2014 half-year and a further 11 per cent in the March quarter 2015.
This followed a drop in preference for equities in first-half of 2014 with market volatility over the period impacting investors preference for equities.
“Overall there is clear evidence of a definite increase in risk aversion across all investors and this is manifesting itself in a number of ways: low bond yields, the creation of large cash stockpiles by both investors and companies and a marked preference for dividend yield,” Allen said.
