Super, managed fund levels bounce back
Australian investors are increasingly sophisticated but also more fearful of missing out on share market gains.
Australians have been pouring money into their superannuation and into managed funds and the level of assets under management has quickly returned towards record highs after the market sell-off in March this year.
Data from the Australian Bureau Statistics reveals that total assets held by Australians in superannuation funds rose 3.8 per cent or $106.1 billion to $2.91 trillion during the June quarter of 2020. Investments in retail managed funds increased 1.5 per cent to $409.4 billion. Both of those levels were the third highest on record.
The jump in AUM came despite the federal government allowing Australians to access their superannuation early to offset the financial pain of the covid-19 pandemic. Almost $30 billion was withdrawn between 20 April and July 26, according to official data.
Source: ABS
FOMO drives flows
Morningstar analyst, manager research, Ross MacMillan says there are several reasons for the rebound in AUM and much of it has to do with people's fear of missing out on the strong gains in the share market, led by technology stocks.
“Even though people have been allowed to access their superannuation early, we still have a lot of people who have remained employed or who are on JobKeeper, they are still receiving a salary and still putting money into superannuation,” MacMillan said.
“They have seen the share market roar back after the March sell-off, and a fear of missing out, or FOMO, has pushed people to invest in superannuation and managed funds. To date, that has been a good call for them.
“Money has poured into actively managed growth funds in particular, but also exchange-traded funds (ETFs).”
MacMillan says low interest rates also are pushing people into riskier asset classes.
“People are aware that fixed income has a lower risk profile than the share market, but interest rates are so low that you can't get a decent level of return which has forced people into riskier asset classes such as equities.”
Association of Superannuation Funds of Australia chief executive Martin Fahy says Australian super fund members had also benefitted from carefully managed diversification in investments, which makes the level of AUM resilient to market movements over the longer term.
“Super funds invest in a range of assets classes, from cash and bonds to listed equities to property and infrastructure and to unlisted equities and hedge funds,” Fahy said.
“This investment diversification provides funds with resilience as they are not subject to the vagaries of any one particular market segment.”
Australians keep cooler heads
Ramsin Jajoo, head of retail at Pinnacle Investment Management, says the strength of the managed funds industry also points to the increasing sophistication of the Australian investor.
“The investment behaviour witnessed in recent months is distinctly different to previous crises, where market volatility has led to investors pulling out money and sitting on cash,” Jajoo says.
“Investors are now more educated and have learnt from previous crises that these periods can often present opportunity and highly rated active managers have the experience and knowledge to maximise that opportunity. At the same time, generating meaningful returns on cash is near impossible at present.
“One certainty still does ring true and that is during these times of uncertainty index huggers and average managers will be left behind.”
ETFs show strong growth
However, Ilan Israelstam, co-founder and head of strategy at ETF provider BetaShares, says the firm’s internal analysis of the largest unlisted managed funds indicates that the growth in the managed funds industry was driven entirely by asset value appreciation rather than flows.
“In fact, it appears that the industry sustained net outflows over the period. By contrast, the Australian exchange-traded fund industry showed strong net inflows over the same period of around $4 billion, with another $4 billion of growth deriving from price appreciation as global share markets rallied,” he said.
“ETFs have also shown strong growth relative to other forms of ASX-traded investing, such as listed investment companies and trusts, which grew by only $500 million over the quarter,” he said.
“Australian equities ranked No 1 for inflows each month from March to June, while we saw a resurgence of interest in international ETFs in May and June, as technology stocks powered the performance of global markets, in particular via the Nasdaq 100 ETF (NDQ).”
Commodity ETFs also saw strong inflows—particularly into gold, traditionally seen as a safe haven, and oil, as oil prices tumbled to record lows in April.
“During this period, we saw substantially higher trading values in ETFs than the historic averages. What all this tells us is that investors are increasingly turning to ETFs to express a diversity of investment views,” said Israelstam.
Morningstar's Global Best Ideas list is out now. Morningstar Premium subscribers can view the list here.