Caroline Cai from Pzena Investment Management speaks to The Inside Network’s James Dunn for our IN60 series. The Inside Adviser
The historic outperformance of big tech stocks in the US may look like a global outlier, but many developed markets (including ours) have high levels of concentration risk. That may not be the case for long, with a likely softening interest rate environment set to re-order indexes around the world.
Global funds drive capital flows in 2022
It’s been two years since Covid-19 reared its ugly head, sweeping fear and panic across global markets and forcing central banks to release massive amounts of stimulus to safeguard against any further deterioration. We are only just starting to see some of the knock-on effects caused by the pandemic, such as inflation and supply-chain disruptions. At the same time, the world is on a path to decarbonisation, and fund managers were quick to respond with ESG-themed funds, which were suddenly in high demand.
Australia’s leading responsible entity provider, Equity Trustees, has released a new research publication titled ‘The 100’ that looks at the trends and thematics of the last 100 funds the firm has launched over the last 24 months.
According to Equity Trustees, the analysis found the majority (34 per cent) of funds brought to market over the past 24 months were global equity funds. This was followed by (Global and Domestic) fixed income (17 per cent), Australian equities (16 per cent), and multi-asset funds (12 per cent).
What was interesting is that the analysis found that there was only a small minority of funds that had an ESG theme that was used when selecting companies. For example, only 9 per cent had an environmental social and governance theme, with 4 per cent having sustainable development goals, 3 per cent were Sharia-compliant, and 1 per cent was carbon neutral themed. The remainder (83 percent) had no theme.
Most funds are now being developed for the retail market as well as wholesale, with only a small percentage being wholesale-only. This trend was clear during the pandemic, in which retail investors drove strong demand for retail funds. In fact, analysis found that “retail fund flows over the year to April 2022 had increased from $4.3 billion to almost $6 billion. Wholesale fund flows increased from $800 million to just over $1 billion.”
Despite the small percentage of funds that were using ESG themes, Mick O’Brien, managing director at Equity Trustees, says it was a major rise when compared to previous years. The number of ESG investment strategies has increased because of rising client demand. O’Brien says, “The key focus of these funds is the environment and reducing environmental impact through investing. The range of strategies is very wide, from having some exclusions to actively looking to invest in a positive manner to improve the environment – and everything in between.”
Equity Trustees also found that over half of the funds launched were by Australian fund managers (55 per cent), while the remainder came from global asset managers (45 per cent). Of the global asset managers, 18 per cent were located in the US while 6 percent hailed from the UK.
The largest rise in funds under management by asset class was driven by global equities, followed by global fixed income and multi-asset funds next in line. And it makes sense: over the last 24 months, global growth and tech stocks have produced the greatest returns, therefore client demand for these sorts of funds was at its highest. Looking out to the next 24 months, as interest rates rise, funds rotate from growth to value and the renewables and digital assets start to go mainstream, expect to see asset managers starting to offer investment strategies in these asset classes.
