Australian Investors Pull Money From Domestic Share Funds

Australian Investors Pull Money From Domestic Share Funds in 2012

Australian managed fund investors pulled money from domestic share funds and favoured fixed income vehicles in 2012, mirroring trends globally, according to Morningstar's inaugural Global Fund Flows Trend Report.

The report examines the trends that drove managed funds flows in five key markets - Australia, Canada, Europe, Japan, and the United States - and provides a worldwide overview that includes these regions as well as other markets in which Morningstar tracks fund performance and assets.

"The Global Fund Flows Trend Report provides a snapshot of the key trends in the managed funds industry worldwide, giving the Australian funds industry, financial advisers, and investors the opportunity to understand the broader global context and drivers," Morningstar Australasia Chief Executive Anthony Serhan said. "The results for 2012 show that the Australian funds industry had a great deal in common with other countries, in particular the withdrawals from share funds and the strong demand for fixed interest offerings."

Australian Highlights

• Investors withdrew just over A$5.33 billion from the Australian managed funds industry in 2012. Australian share funds bore the brunt despite the comparatively strong performance of the Australian sharemarket, investors withdrawing A$9.65 billion from Australian share funds over the year, or nine percent of assets at the start of the year.
• Fixed interest funds were in stronger demand. Healthy returns combined with continued inflows meant that most fixed interest fund managers' assets grew steadily. There was however a noticeable shift in preferences: diversified fixed interest funds garnered over A$2.93 billion at the expense of more focused vehicles.
• Multi-sector/balanced funds took in the largest net inflows in 2012, totalling A$6.46 billion, and continued to burgeon. This category remains a major beneficiary of mandated superannuation retirement savings, and its flows therefore do not necessarily represent managed fund investor sentiment.
• Industry superannuation funds, led by AustralianSuper, benefitted greatly from retirement savings inflows. Schroders (A$1.62 billion) also attracted a substantial inflow in 2012, while boutique Magellan continued to punch above its weight and attracted a sizeable A$1.10 billion.
• Other than industry superannuation funds, Magellan Global was the standout at the individual fund level, amassing more than A$1.0 billion in 2012. While one boutique prospered, another struggled. Platinum International, renowned investor Kerr Neilson's flagship international share fund, has suffered persistent outflows. The A$1.15 billion which exited in 2012 reflected angst over the short- to medium-term underperformance, despite the fund's stellar long-term results.
• Australian exchange-traded funds have attracted strong inflows in recent years, but the sector remains a small fish in the Australian managed funds pond (A$6.0 billion out of around A$1.0 trillion). This means that traditional index funds have so far remained the vehicle of choice for investors seeking passive exposure in Australia, and these have experienced flows more or less akin to their active counterparts, although on a much smaller scale.

Global Highlights

• The global funds management industry grew at a 3.90 percent organic growth rate in 2012, despite worldwide economic uncertainty. US$565.0 billion flowed into managed funds globally during the year. These massive inflows however fell short of 2009 and 2010, which saw inflows of US$746.0 billion and US$672.0 billion respectively. The prevailing global trend in 2012 was investors' hunger for yield and quest for the perceived safety of fixed income funds, which gathered US$535.0 billion worldwide in 2012, or nearly 95.0 percent of long-term net inflows.
• US fixed income, which houses the intermediate-term bond category and US heavyweights PIMCO Total Return and DoubleLine Total Return, is by far the largest long-term global category, with nearly US$2.0 trillion in assets. US investors contributed US$199.0 billion of the category's US$227.0 billion total inflow in 2012. The PIMCO fund is by far the world's largest actively-managed strategy, with US$442.0 billion in assets.
• Interest from cross-border investors propelled funds in the US fixed income category to a 47.0 percent organic growth rate in 2012. Many of the most popular offerings are tended by US-based managers including AllianceBernstein, Muzinich, Neuberger Berman, and PIMCO.
• While 78.0 percent of worldwide managed fund and exchange-traded fund assets still reside in actively-managed offerings, passive products captured 41.0 percent of estimated net flows in 2012 (US$355.0 billion). With the exception of Australia and New Zealand, index funds grew faster than actively-managed funds in every geographical region during the year, and the United States is leading the way in its appetite for low-cost passive strategies.
• Vanguard and PIMCO took in 16.0 and 18.0 percent respectively of worldwide long-term managed fund inflows in 2012.

About the Global Fund Flows Trend Report

The Global Fund Flows Trend Report examines each key market in detail, analysing flows by attributes such as broad asset class, Morningstar category, and fund manager, as well as new fund launches and the active versus passive dynamic in each market. The commentary encompasses the 71 domiciles in which Morningstar tracks funds flows, accounting for US$20.70 trillion in assets.
To view the complete report, visit http://www.global.morningstar.com/flowstrend2012. For more information about Morningstar Asset Flows, visit http://global.morningstar.com/assetflows. The Asset Flows module is a component of Morningstar DirectTM, Morningstar's web-based global institutional investment analysis platform (http://corporate.morningstar.com/US/asp/subject.aspx?xmlfile=40.xml).

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