Equity funds saw outflows of more than $500 million in the first quarter of 2023, the highest proportion since the start of the pandemic.
Fund flow data from Calastone for the first quarter of 2023 found managed equity funds saw outflows of $516 million in the first three months of the year.
This compared to inflows of $296 million in the fourth quarter of 2022.
This was the highest rate since the first quarter of 2020, before the start of the COVID-19 pandemic.
Calastone said the year had begun well with “strong buying activity” as the ASX 200 rallied 6 per cent, but this was reversed in February as global markets declined and continued throughout March as interest rates kept rising.
However, the firm noted that the collapse of Credit Suisse and Silicon Valley Bank had not led to any uptick.
Looking at global versus domestic equities, investors demonstrated a preference for those domiciled in Australia. Investors added $319 million to Australian equity funds while withdrawing money from every overseas category as well as specialist sector funds.
Teresa Walker, managing director of Australia and New Zealand at Calastone, said: “Australia’s stock market is performing in line with its global peers, yet investors drew a marked dividing line in Q1 between home and abroad.
“This reflects a clear, structural, long-term bias in favour of investing in domestic Australian equities. Over the last four years, domestically focused funds have absorbed more than a third of the $28 billion Australians have added to their managed equity holdings with almost all the rest flowing into funds investing overseas.
“This is despite Australian equities accounting for only 2 per cent of global market cap and having a distinct sector bias.”
A second asset class to see declines was real estate which suffered its first quarterly outflow since the second quarter of 2022. However, it was far smaller than for equity funds at $30 million.
The firm noted that commercial estate was “triply vulnerable” to outflows in a period when interest rates were high.
“Commercial real estate is triply vulnerable when interest rates are high or rising. First, higher rates impact demand; lower occupancy affects rents paid to investors. And secondly, the sector uses more leverage than most, so higher interest costs bite into profit margins.
“Finally, property values are also very sensitive to the higher cost of capital. Australia’s strong growth over recent years has supported the domestic real estate sector, but it is not immune to these realities.
“The start of the global rate rise cycle over a year ago quickly caused a sharp drop in net inflows to real estate funds, driven mainly by a buyers’ strike rather than a big increase in sell orders.”
On the flip side, investors put money into fixed income funds with the asset class seeing $664 million in inflows in the first quarter. However, this was lower than in previous quarters thanks to outflows during March.
