Home / In Practice / ‘Dramatic outflows’ from bond funds in June: Calastone

It was clearly an incredibly tough beginning of the year for advisers and consultants building multi-asset portfolios.

Calastone’s release this week of the flows into and out of the managed fund sector in Australia made for tough reading. “Australian investors have turned negative on equities,” said Teresa Walker, the firm’s managing director of Australia and New Zealand, with “dramatic outflows” also experienced by fixed-income or bond funds in June.

In its latest report, covering the June quarter, the firm (which tracks 95 per cent of fund flows through platforms and advisory channels by reviewing more than 500,000 buy and sell orders every month) confirmed that every asset class saw outflows in the June quarter, except Australian equity.

It was clearly an incredibly tough beginning of the year for advisers and consultants building multi-asset portfolios, with both the popular plays in fixed-income and equity, being long-duration and high-growth respectively, being sold off heavily to begin the year. Yet the flow-on impact has been exceptional, with Calastone reporting four straight months of redemptions from fixed-income strategies, including June. 

According to its analysis, the June quarter “saw inflows to equity funds fall to the lowest level since Q1 2020,” or when the pandemic first hit confidence and the markets. Across all asset classes, outflows totalled $2.05 billion, the largest since its measures began in 2019, with even traditional inflation-protected strategies like property and infrastructure, which are seeing strong flows overseas, having money pulled from them during the month.

Importantly, the net flow data, which included both in- and outflows, is not being driven by weaker levels of new investment, but simply outright redemptions by a growing pool of investors. By far the hardest hit, however, have been fixed-income strategies, representing $1.52 billion of the total outflows during the quarter, of which $984 million occurred in June.

The timing of these redemptions is clearly worth greater analysis, as the majority of the pain for traditional long-duration fixed-income was felt in March when bond yields spiked around the time of the first Federal Reserve rate hike. With such a delayed reaction until these outflows are occurring, and the increasing realisation that rate hikes may not be sustainable, the inference is that the outflows may have been triggered by quarterly portfolio reviews in March, during which consumers grew concerned with significant losses on the perceived lowest-risk portion of their portfolios.  Little else can explain why net outflows have continued for four straight months.

On the positive side has been the relative performance of the Australian equity market, with the natural bias to energy, commodities and financials holding the funds in good stead on a global basis. The result was Australian equities seeing $36 million in inflows in June when all other funds saw $253 million in outflows.

With another round of end of financial year reviews to come, July’s data will make for insightful reading, with Walker highlighting that “signs of optimism are scarce, as the global bear market shreds investor sentiment.”