Strong equity returns mask weak fund flows
While the $36.1 billion growth of the Australian managed fund sector during the September quarter might seem like a sizeable increase, a closer look at the figures reveals weak fund flows across most major sectors, according to a report released by Morningstar.
The growth achieved in the September quarter was the fourth consecutive quarterly increase for the managed fund sector, which resulted in total assets under management breaching the $1 trillion mark for the first time.
However, positive equity market performance was the driving force behind much of the growth, with most major asset classes reporting weak underlying fund flows, Morningstar's Australian Asset Flows Report found.
Mass exodus out of fixed income doubled its pace over the quarter, while international equity strategies ended flat for the second quarter in a row, according to fund research analyst at Morningstar, Darren Cunneen.
"Bond fund outflows amounted to roughly $860 million, almost double that of quarter two's redemptions," Cunneen said.
Australian-focused fixed income strategies bore the brunt of the outflows, losing more than $420 million.
"Investors may be concerned about the potential for domestic longer-term yields to rise along with overseas bond markets," he added.
"Credit strategies were, however, a bright spot with the struggling asset class."
Investors pulled more than $960 million out of Australian equity funds, despite double-digit quarterly returns.
"There may be a lack of confidence among fund holders that the Australian economy can successfully transition away from the resource-led boom that had driven the market for much of the previous decade," Cunneen said.
However, exchange-traded fund (ETF) industry assets grew by 15.2 per cent over the quarter, from $7.7 billion to $8.9 billion. The rising stock market accounted for around two-thirds of the increase, yet ETFs reaped substantial inflows, the report found.
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