Surprise investor move to managed funds
Much of the money currently flowing out of cash is going into managed funds and not into direct equities as previously anticipated, according to BT Financial Group (BTFG).
BTFG head of platform product Kelly Power said the group's wrap platform had focused on building its direct shares capabilities in anticipation that direct investments' popularity would grow exponentially.
However, latest figures from BT Wrap show flows directed to managed funds grew notably in the last three months and at a faster pace than equities. May in particular saw $700 million go into managed funds, while equities received $267 million in flows — which was a decrease on previous months.
"We're starting to see a lot of money move out of cash and back into the market and that's even regardless of the volatility recently; a lot of it is going back into managed funds which we're very surprised about," Power said.
"Everyone thought it'd be direct equities — we did a lot of work on our direct shares in anticipation of that happening, so it's been surprising that a significant portion of that money has actually flown into managed funds."
A rebound in flows to managed funds was first witnessed earlier this year, with the Investment Trends Planner Direct Equities and SMA Report showing that managed funds had recorded a 16 per cent uptick in usage as at 31 March this year, before markets turned volatile again.
"This is the highest level of flows to listed investments we have ever observed," said Investment Trends senior analyst Recep Peker.
Planners are allocating 47 per cent of new client money to managed funds, as opposed to only 24 per cent going to direct investments.
Investment managers have been seeing a continuation of this trend in the period since March.
"Yes, there is definitely an indication that clients are moving money from cash into managed funds," said Peter Folkes, head of business management and sales at Advance Investment Solutions, also owned by BTFG.
"This is evidenced by the fact that from an Advance perspective our flows, as at the end of May, are 80 per cent up on last year," he added.
"We know from speaking to advisers that they are looking at the returns in terms deposits and cash funds relative to the potential total return in the equities markets — and actively allocating to managed funds. Advisers are still allocating to cash, but more so as an asset allocation decision as opposed to chasing yield."
Investors' willingness to move their money to managed funds despite the recent volatility points to an increase in optimism — although Advance head and chief investment officer Patrick Farrell said he was worried about this behaviour.
"We're not there yet. We're not in a situation where the longer-term growth markets are in a position that we can afford to say, ‘look, in the short term, these markets will continue to power on, everything's good and investors should have plenty of confidence' — because that's not the case," Farrell said.
"We need to be aware that good returns will come, but they'll be associated with a lot of volatility as well," he added. "Investors, superannuation clients, advisers — they all need to know that we've still got a lot of hurdles to get through and a lot of pain to get through."
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