Australian investors are lagging behind the global trends for passive funds and are catching up on the environmental, social, governance (ESG) curve compared to Europe, according to Calastone.
The firm’s report, titled ‘Tidal Forces – can active funds fight the passive funds?’, found that although globally passive funds were winning most of the new capital, Australian investors were still showing preference for active funds, which in result were ahead in cash terms.
Across Calastone’s global network, index tracking funds garnered inflows of US$10.0 billion ($14.4 billion) in 2019 and a further US$13.5 billion in 2020. Following this, across every major territory and across every equity fund category, Calastone’s indices of passive funds outpaced their active equivalents in the last two years.
However, Australians added only modestly to their active fund holdings in 2019 and significantly in 2020, in contrast to the rest of the world. The report revealed that over the two-year period, these net inflows totalled $5.7 billion and, unlike investors elsewhere, Australian investors added less to index funds – net $3.6 billion.
When it came to ESG factors, the UK and European investors were perceived as the keenest buyers, according to Calastone’s research.
Based on fund flows, Australian and Asian investors were about two and three years behind the curve, respectively, while Australian investors, in 2019 and 2020, added just $1.2billion to ESG equity funds, which meant that only $1 for every $13 that flowed into equity funds of any kind – a fraction of the global average.
Ross Fox, managing director, head of Australia and New Zealand at Calastone, said that Australians were pretty patriotic and more than a third of the money they added to equity funds in 2020 went into funds that only invest in Australian equities.
By contrast, in Europe, the UK, and most of Asia, investors preferred to take a more global approach.
“In Australia, discourse in the financial services industry is more frequently turning to ESG. The topic is still more muted than in the UK and Europe and the home-market bias leaves investors with fewer assets that would meet global ESG standards. Across Asia, the speed at which attitudes are changing depends on the level of market development,” he said.