Institutional investors have increasingly turned to alternative assets as a means of improving portfolio resilience, managing risk, and capitalising on opportunities unavailable in public markets. Australian Retirement Trust (ART) has been a key participant in this shift, developing a strategic approach to investing in unlisted assets that balances risk and opportunity.
The planned transition of $44 billion worth of additional Tier 1 (AT1) bank hybrids to Tier 2 capital by 2032 will see the last bank hybrid disappear by March 2032, bringing to an end an era that income-oriented Australian Securities Exchange (ASX) investors will remember mostly fondly. In this guest article, Simon Dawkins, Partner and Head of Capital Markets at Escala Partners, lifts the lid on a better alternative for sophisticated investors.
Mutual funds double in nine years, bond funds in driver’s seat
The global mutual fund market has roughly doubled in size in the last nine years, according to the Calastone Fund Flow report, which puts the assets held in global mutual funds at a new record total of US$78.2 trillion ($125.1 trillion) at the end of 2024. That is after a 13.6 per cent surge in assets under management (AUM), which added US$9.35 trillion ($15 trillion) to the total.
The mutual funds industry’s total AUM has now comfortably surpassed the previous peak of US$70.9 trillion ($113.4 trillion) notched at the end of 2021, just before an aggressive succession of interest rate increases by central banks in most major economies began to dampen asset prices of all kinds.
Fixed-income was a standout, with record-breaking inflows, netting US$52 billion ($80 billion) globally—more than double the US$21.3 billion ($32.8 billion) recorded in 2023—as investors capitalised on easing central bank policies. Inflows to bond funds rose in Asia, Europe, the UK and Australia, and were at their highest in six years in every territory Calastone surveys. Since 2019, says the global fund network, investors have added more cash to bond funds than to all other asset classes combined.
Surging stock markets did not translate into dramatic equity fund inflows in 2024 in many parts of the world – equity funds globally saw net inflows of US$3.5 billion ($5.4 billion) in 2024, a significant rebound from the US$20.8 billion ($32 billion) withdrawn over 2022 and 2023 combined. Global equity funds led the way with US$18 billion ($27.7 billion) in inflows, followed by North American equity funds, which attracted US$9 billion ($13.8 billion).
In terms of active versus passive, active fund managers beat index funds for inflows in fixed income funds – 75 per cent of 2024’s inflows were to actively managed bond funds. Asian and Australian investors are the key buyers of active bond funds.
Global equity funds have long favoured active strategies, says Calastone, accumulating US$69.3 billion ($106.6 billion) since 2019, compared to US$25.7 billion ($39.5 billion) invested in passive funds over the same period.
Actively managed North American funds attracted US$6.4 billion ($9.8 billion) of the total US$9 billion ($22.1 billion) North American equity inflows. Calastone says this suggests that investors want US exposure, but have perhaps become wary of the extreme concentration of the US stock market. It noted that five companies—Apple, Microsoft, Alphabet, Amazon, and Nvidia—account for US$14.5 trillion ($22.3 trillion) in market value, more than one-quarter of US market capitalisation, and equivalent to the total stock markets of Europe and the UK combined.
Despite these active fund gains, globally, index-tracking equity funds maintained their dominance for the third consecutive year, with investors adding US$17.5 billion ($26.9 billion) while withdrawing a net US$14 billion ($21.5 billion) from actively managed counterparts.
In Australia, managed funds inflows swelled to $13.8 billion in 2024, a five-fold increase on 2023. Fixed-income fund flows was the star performer, rising almost three-fold to $12.2 billion. Equity funds recovered from mass exodus in 2023, modestly regaining $380 million.
As for exchange-traded funds (ETFs), figures from issuer VanEck show that the Australian ETF industry hit new highs in 2024, with total net flows for the 2024 calendar year up to $35 billion, beating the annual record of $23.2 billion, set in 2021. Net flows hit $3.8 billion in December 2024, a record for any month.
International equities ETFs listed on the Australian Securities Exchange (ASX) saw unprecedented net flows of more than $15 billion for the year – more than double the flows into Australian equities ETFs. In 2023, international equities ETFs came in third for net flows, after fixed income and Australian equities.
The popularity of international equities ETFs among Australian investors helped to drive the industry’s market capitalisation to $247 billion, reflecting year-on-year growth of 38 per cent. As Australian investor demand for ETFs continues to rise, fund managers are reacting by issuing vehicles: the latest VanEck ETF Industry Pulse reported that 64 new ETFs launched in 2024 on the ASX and CBOE, taking the total number of exchange-traded products (ETPs) in Australia to 401.
Globally, ETFGI, an independent research and consultancy firm that tracks the ETF industry, says the global ETFs industry gathered a record US$1.88 trillion ($3 trillion) during 2024, the second highest recorded full-year of net inflows, behind the figure of US$1.29 trillion ($2.1 trillion) in 2021
During December, the global ETFs industry gathered US$207.7 billion ($332.3 billion) in net inflows, in the 67th consecutive month of net inflows. ETFGI says the global ETFs industry’s total AUM rose by 27.6 per cent in 2024, to US$14.9 trillion ($23.8 trillion), its second-highest figure recorded, just below the record high assets of US$15.1 trillion ($24.2 trillion) attained in November 2024.
