- Why Calastone?
Sydney, 6 February 2024: The last 12 months saw massive sentiment shifts across the global managed funds sector, according to Calastone’s 2023 Global Fund Flows report. The report examines the movement of investor capital across its global network of unlisted managed funds and distribution platforms.
The biggest change in heart was seen among fixed income investors, who globally poured more than US$22bn into fixed income funds, anticipating peaking interest rate cycles as central banks signal a less hawkish stance. Leading this sentiment reversal from 2022, were investors in Hong Kong, Europe and Taiwan. Inflows more than doubled in the UK.
Marsha Lee, Head of Calastone Australia and New Zealand, commented: “While geopolitical uncertainty hangs heavy, the promise of higher yields and a favourable capital appreciation outlook proved irresistible around the world. Australian investors have shown a very high conviction in fixed income funds, bucking the outflow trend in 2022, and ramping up investment five-fold in 2023 to U$3.1bn.”
Equity funds faced a second consecutive year of global net outflows, losing US$7bn to redemptions, almost half the amount that drained from equity funds in 2022. UK and European investors were the most negative last year, joined also by Australian investors who turned net sellers, albeit modestly, for the first time since Calastone began to track local flows in 2019, redeeming $724m in 2023. Hong Kong was the only market to see equity fund inflows.
“Despite global and Australian equity markets performing well in the first half of 2023, investors only added cautiously between January and April, becoming net sellers for the rest of the year once the AI fuelled tech rally lost steam and bond markets began to price rate cuts. Even strong markets in December were not able to tempt inflows,” Ms Lee said.
Passive equity funds attracted US$20.1bn inflows during 2023, over which time active equity funds shed US$27.2bn. Both strategies saw outflows in 2022, more so for active funds. 2021 was an outlier for active equity funds, which ballooned US$40.3bn, attracting more than three times the flows to passive equity funds that year.
“Passive funds are once again in the ascendency, bringing more pressure on fees, at a time when investors are demanding faster and more modern investment experiences. Over the last five years, passive funds are well ahead, attracting US$53bn versus the US$1.7bn that has flowed to active funds. Removing friction, time, risk and cost remain critical objectives for fund managers in their quest to compete for capital,” she said.
After a three-year boom from 2020-2022 that attracted US$51.2bn, six times more than non-ESG funds, ESG funds shed US$10.2bn last year. European investors led the exit and global peers all followed.
UK investors redeemed US$1.2bn from ESG equity funds, double their redemptions from non-ESG equity funds. Australians redeemed US$292m from ESG equity funds, versus US$425m from a much larger market of non-ESG funds.
“Our data shows a determined focus on selling, given sizeable redemptions from smaller pools of ESG funds relative to non-ESG. The backlash reflects global concerns over greenwashing and growing awareness that ESG offerings don’t always meet the values and concerns of all investors. 2023 was the first year, since we started tracking flows in 2019, that non ESG equity funds have attracted more capital than ESG,” Ms Lee said.