Aussie investors’ home bias sees them miss out on ‘extraordinary rebound’
Australian investors missed out on an ‘extraordinary rebound’ in global equities in 2023 as a home bias meant they invested $5.3 billion in Australian equity exchange-traded funds (ETFs), according to Vanguard.
Research by the ETF provider found Australian equity ETFs attracted the largest share of equity ETF inflows in 2023 at $5.3 billion.
This was up 20 per cent compared to 2022, the firm said, with the $14.3 billion Vanguard Australian Shares Index ETF seeing 11 per cent of total flows.
On the other hand, global equity ETFs saw $2.2 billion, which was down 15 per cent on the previous year when flows were $2.5 billion.
However, global markets significantly outperformed their Australian peers over the year.
The MSCI World Index returned 24.4 per cent over the year to 29 December compared to smaller gains of 7.8 per cent for the ASX 200. In the US, the S&P 500 also returned 24 per cent and the tech-heavy Nasdaq returned 44.7 per cent.
It may have been that Aussie investors were erring on the side of caution, however, as the MSCI World had lost 17.7 per cent in the prior year.
Adam DeSanctis, head of ETF capital markets, Asia-Pacific, at Vanguard, said: “Despite strong gains recorded in global equity markets, the asset class still received less inflows than its domestic counterparts, recording $2.2 billion compared to $5.3 billion Australian equities attracted.
“It’s clear Aussie investors still favour Aussie equities, perhaps in part due to the familiarity of domestic companies or the view that offshore investments might be riskier. This kind of home bias, however, can be costly, particularly as 2023 saw very strong returns from global equities. Investors who weren’t invested or had cashed out in 2022 when global equity returns fell therefore missed on this extraordinary rebound opportunity.”
Acknowledging Australian investors may be reluctant to move away from domestic equities, DeSanctis recommended a blend of both international and domestic exposures to manage investment risk and portfolio volatility.
Last week, research by Betashares found the Vanguard Australian Shares Index ETF attracted the most inflows of all ETFs in the Australian market place with $1.5 billion. This was followed by the Betashares Australia 200 ETF which gained $1 billion.
It agreed with Vanguard that global equities had seen a “muted year” with overall flows falling from $3.3 billion to $2.9 billion.
AUTHOR
Laura Dew
Recommended for you
Amid a growing appetite for alternatives, investment executives have shared questions advisers should consider when selecting a private markets product compared to their listed counterparts.
Chief executive Maria Lykouras is set to exit JBWere as the bank confirms it is “evolving” its operations for high-net-worth clients.
Bennelong Funds Management chief executive John Burke has told Money Management that the firm is seeking to invest in boutiques in two specific asset classes as it identifies gaps in its product range.
Responsible investment performance concerns have lessened as the market hits $1.6 trillion in AUM, according to RIAA’s annual report, but greenwashing fears among asset managers are on the rise.
