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ETF investors on the sidelines in February as industry growth falls, again: Charts of the week

Lewis Jackson  |  14 Mar 2022Text size  Decrease  Increase  |  
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The investing fever that has gripped Australians since the pandemic has broken amid war in Ukraine. Flows into ETFs trickled in as big withdrawals from global equity funds weighed on the sector.

Investors ploughed $167 million into Australian ETFs in February after accounting for outflows. It was the smallest amount in at least five years and a fraction of the $1.8 billion monthly average over 2021, according to data published by the Australian Securities Exchange (ASX).

February was the second month in a row where flows into ETFs decelerated from the record pace set last year. January’s $1.3 billion in net flows were barely half the $2.1 billion recorded in December 2021.

Big exits from global equity funds moved the needle. The iShares S&P 500 ETF (ASX: IVV) recorded net outflows ($44 million) for the first time since July 2020. Investors yanked $690 million from Magellan’s flagship Global Open Class ETF (ASX: MGOC), part of the $13.7 billion pulled from the fund manager’s investing vehicles this year as it battles poor performance and the leave of absence of star manager Hamish Douglass.

However, even excluding Magellan’s outsized impact, total ETFs flows remained less than half the 2021 average, at $856 million.

Australian equities outperformed the US market in February. The technology light and resource-heavy local bourse benefited from rising commodity prices and distance from the conflict in Eastern Europe.

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The S&P/ASX 200 rose 1.1% in February compared to a 3.1% decline for the S&P 500 and a 3.4% fall for the technology-heavy Nasdaq Composite.

Greater resilience may help explain why Australian equity funds were most popular with investors in February. ETF staple Vanguard Australian Shares Index ETF (ASX: VAS) and iShares Core S&P/ASX 200 ETF (ASX: IOZ) were the only funds to register inflows of more than $100 million. Both funds rose for the month, up 2.1% and 2.3%, respectively.

In a sign of growing investor skittishness around global stocks, the third most popular fund by net flows was VanEck’s MSCI International Quality ETF (ASX: QUAL), which recorded $97 million in net flows.

Equity markets worldwide have endured a torrid year as Russia’s invasion of Ukraine added fuel to a broad selloff centered around inflation and central bank rate hikes.

The S&P/ASX is down 6% this year while the Nasdaq Composite has entered a bear market, falling more than 20% from a previous high in November.

Value takes the lead

Value funds are surging past their growth equivalents in Australia and overseas, but so far, ETF investors are refraining from chasing the strong performance.

Local and global large-cap value funds outperformed their growth equivalents in February, widening the gap between once-high flying growth managers. Over a one-year period, Australia’s large-cap value funds are up 13% compared to 6% for growth. Overseas the difference is 16.4 % to 4.6%.

Growth investors are holding on for now. Flows into global growth actively-managed funds from Hyperion and Munro were positive for the month. Hyperion Global Growth Companies Fund (ASX: HYGG) grew its flows from $49 million in January to $63 million in February, despite performance falling 9.4%.

But interest in value-themed ETFs is rising. The Vanguard Global Value Equity Active ETF (ASX: VVLU) and the VanEck MSCI International Value ETF (ASX: VLUE) roughly doubled their net flows between January and February. The funds declined -3.3% and -4.6%, respectively in February.

Investors stay cool on safe havens and commodities

In a month dominated by war scares and the subsequent invasion of Ukraine, ETF investors did not pivot to safety.

Fixed interest flows were mostly unchanged relative to January when equity markets first began selling off. Inflows to gold ETFs fell slightly compared to the month before. Investors pulled almost $300 million from the BetaShares Australian High Interest Cash ETF (ASX: AAA), more than reversing January’s massive flows into cash funds.

Flows into commodity funds were also steady despite a string of oil and metal ETFs topping performance tables in January amid soaring commodity prices.

A suite of ETF Securities funds investing in physical metals such as silver and palladium saw inflows of less than half a million, while the BetaShares crude oil ETF (ASX: OOO) saw -$1.6 million in outflows.

Investors also pulled $100 million from the BetaShares Global Energy Companies ETF (ASX: FUEL). The ETF rose 2.3% in February for a 21.5% gain year to date.

is a reporter and data journalist with Morningstar. Tweet him @lewjackk or get in touch via email

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