Australia’s real estate funds are seeing a cooling in demand after months of red-hot buying activity from investors, according to the latest Fund Flow Index (FFI) from Calastone, the largest global funds network.
Inflows to Australian property funds fell to their lowest level in almost a year in June, dropping to just A$115m. For the whole of the second quarter, inflows totalled A$450m down by a third compared to the first quarter of 2021, and 15% lower than in Q4 2020.
The reduction in net inflows was primarily driven by a drop in buying activity and not by increased selling, indicating a cooling of enthusiasm to add more capital rather than a fear-driven withdrawal of funds. Buy orders still comfortably outgunned sells too – for every $1 of selling there was $1.84 of buying. There were greater nerves over equities than real estate. Although Australians remained net buyers of domestically focused equity funds, sell orders reached a record in June.
Calastone’s FFI:Real Estate fell to 64.8 in the second quarter from 68.5 in the first (a reading of 50 means the value of buys equals the value of sells). For equities, it dropped from 58.7 to 56.4.
Ross Fox, Head of Australia and New Zealand at Calastone said, “Most of our cities have remained open much of the last year, while those across the rest of the western world have resembled ghost towns during extended lockdowns. This has supported demand for Australian commercial real estate and kept funds from investors flowing almost uninterrupted.
But Australia is looking exposed right now. Nerves about the Delta variant of Covid-19 and lockdowns in several of our state capitals in June have dampened enthusiasm for Australian property and equities over the last quarter.
We must not overstate the pessimism as these funds are still seeing healthy inflows. The bigger picture suggests that the global economic recovery is strong, delivering positive earnings momentum for equities, both in Australia and abroad. If the current outbreaks are successfully controlled, there is no reason to expect a sudden rush for the exits over the quarter ahead.”
Methodology
Calastone analysed over half a million buy and sell orders every month from January 2019, tracking capital from advisers, platforms and as it flows into and out of managed funds. Data is collected until the close of business on the last day of each month. A single order is usually the aggregated value of a number of trades from underlying investors passed for example from a platform via Calastone to the fund manager. In reality, therefore, the index is analysing the impact of many millions of investor decisions each month.
More than 95% of Australian managed fund flows by participant pass across the Calastone network each month. All these trades are included in the FFI. To avoid double-counting, however, the team has excluded deals that represent transactions where funds of funds are buying those funds that comprise the portfolio.
The index is a measure of investor sentiment, placing the net flow of capital into the context of overall trading volumes. It also allows the reader to compare flows in asset classes of different sizes – $100m of inflows may be very large for a small, relatively new asset class like ESG equity but very small for a huge category like fixed income. A reading of 50 indicates that new money investors put into funds equals the value of redemptions (or sales) from funds. A reading of 100 would mean all activity was buying; a reading of 0 would mean all activity was selling. In other words, $1mn of net inflows will score more highly if there is no selling activity, than it would if $1mn was merely a small difference between a large amount of buying and a similarly large amount of selling.
Calastone’s FFI considers transactions only by Australia-based investors, placing orders for funds domiciled in Australia. The majority of this capital is advised, via platforms.
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