Industry braces for funds shock
By George Liondis
The Australianmanaged fund industry is bracing itself for the repercussions of the terrorist attacks in the US, as investors respond to the crisis by looking for safe havens away from the uncertainty of world equity markets.
In a clear display of anxiety on the part of retail investors, Australia’s fund managers have begun registering a flow of money out of growth funds, as individuals and advisers park assets in cash or avoid the market altogether, while they wait out the uncertainty.
The Australian reaction comes just as the first credible evidence emerges that the US’s giant mutual fund industry is in a state of unrest in the wake of the terrorist attacks.
US investors withdrew US$4.9 billion out of US equity funds in the five working days up to September 26, as the US market plunged by about eight per cent in the immediate aftermath of the attacks.
The outflows, measured by US-based mutual fund researcher AMG Data Services, were in stark contrast to money market funds, which registered record inflows of US$66.4 billion in the first few days after the attacks, as US investors rushed for the relative safety of cash products.
While official figures on the Australian managed fund industry since the attacks are not yet available, sources within Australia’s major funds management organisations have confirmed a similar pattern emerging locally, although much more restrained
“Obviously the events of the September 11 have impacted, but not dramatically. We have seen a modest increase in switching [from growth to conservative funds] and redemptions, and a modest decrease in applications,” Colonial First State’s general manager of distribution and marketing Michael Cant says.
It is a similar story at AMP, BT and Perpetual, with a small percentage of investors acting on their uncertainty by switching to more conservatively oriented funds.
“The mood is for investors to want to put the money they have in growth assets into cash,” Perpetual Investment’s group executive Gerard Doherty says.
The uncertainty surrounding events in the US has also been compounded by figures suggesting a gloomy economic outlook, even prior to the terrorist attacks.
The Australian share market fell by 1.1 per cent over the month of August, dragging returns for the year down to -5.8 per cent, according to the latest InTech performance survey. International markets lost -6.3 per cent in August in local currency terms, resulting in a loss of -8.2 per cent for the year.
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While the last several months have seen increased market volatility, particularly in the US, advisers said there are multiple reasons why there has been an increase in defensive asset flows.
Scarcity Partners believes the dynamics playing out in the managed account and outsourced chief investment officer market are “here to stay” based on positive developments in financial advice.
Former executive chairman of failed stockbroker BBY, Glenn Rosewall, has been charged with aiding, abetting, counselling or procuring BBY’s dishonest conduct in relation to a financial service.
Fidelity International research has revealed Australian investors are significantly more optimistic about the market outlook and feeling more comfortable than their APAC peers, despite ongoing market volatility.
