Follow the money: which top-rated funds are seeing the biggest inflows
This year, Livewire's Top-Rated Funds series debuted to the world. You can now see - with stunning clarity - the performance, fees and returns of the top funds in Australia, as rated by Lonsec, Morningstar and Zenith. What we haven't been able to show you, until now, is how investors are voting with their hard-earned dollars into funds. Exclusive data on the Top-Rated funds provided by Morningstar shows which funds and sectors people are allocating the most money to. It also can provide clear examples of broader macroeconomic trends we're seeing today. While the list we have is limited to a pool of 100 funds, these funds are top-tier and come highly recommended. There's one fund, you've probably never heard of, raking in nearly double the funds of its next contender, and so we spoke with its CIO to work out what the appeal is.
By the numbers...
- Of the 100 Top-Rated Funds, the fund which captured the highest inflows was Ardea Real Outcome Fund, with over $1.1 billion in net fund flow over the March quarter, and $3.7 billion of the year to end of March.
- Net flows to our 100 Top-Rated funds totalled $2.2 billion over the March quarter, compared with all managed funds and ETFs in Australia which is $12.7 billion, according to Morningstar.
- This means nearly 20% of net inflows were captured by these funds in the March quarter.
- Across all funds, in the first quarter of 2021, cash recorded net outflows of $2.1 billion. In the first quarter of 2020, cash had accumulated more than AUD 19.0 billion in inflows.
- The Livewire 100 Top-Rated funds consisted of 42% Aussie Equities. This asset class received nearly $300 million in net flows.
- Below, we have also released the Top Five funds with the highest inflows for Aussie equities, International equities and fixed income.
So, what does the data tell us?
We were certainly not surprised to see investors scuttling out of cash and short term debt products over the past 12 months and moving into equities. The COVID-19 recovery was a portfolio booster you wouldn't want to miss.
Excludes Alternatives and mixed allocation funds. Source: Morningstar/Livewire Markets.
The biggest reversal in these 100 funds, as you'll see in the chart above, is the flows into global large-caps. Over a 12 month period, funds targeting global large-caps have seen net negative outflows, with only the past three months showing signs of a positive inflow.
Which funds received the highest inflows?
Over the three months to 31 March 2021, Morningstar recorded the highest fund inflows to Ardea Real Outcome Fund. In fact, over the past 12 months, they received the highest inflows of the Top-Rated funds as well, with $3.8 billion over the year and $1.1 billion over the quarter. It's worth noting that Morningstar categorises the Real Outcome Fund as "Alternative" rather than fixed income, which is why it does not appear in the other charts.
We spoke with co-CIO Gopi Karunakaran from Ardea Investment Management about their success with the fund.
"We adopt a very specialised approach to investing, which is that we use government bonds. The same government bonds that everybody else uses, but we use them in a very different way extract returns in a very different way," said Karunakaran.
This unique method is called "relative value investing", which can use shorting to exploit mispricings in bonds, or through interest rate and inflation derivatives. The more uncertainty there is in markets, the better this fund will perform because high volatility means more mispricing opportunities arise.
Not only that, the more uncertainty there is in markets the more investors will want to seek safe havens. With inflation looming over a hazy horizon, investors shift into asset classes that are either going to benefit from inflation or will rise above it.
According to Karunakaran, it doesn't matter whether economies perform well or not, if the market rises or falls, it doesn't even matter if inflation hits (to a certain extent). Pure relative value investing is not based on trying to predict which way the coin will fall.
To be able to invest in something independent of all those factors has been very appealing to Ardea's investors.
"For our type of approach that is the ideal environment, because when you get lots of volatility, you get lots of people having to hedge and buy and sell and you got lots of flows going through the market that creates lots of demand-supply imbalances, which in essence is what creates opportunities and lots of dislocations," he said.
It's irrespective of whether inflation hits or yields go up. The key is volatility. And we have that in spades right now.
Who is investing in the fund?
The Real Outcome Fund has both a managed fund and ETF component, the latter granting easier access to the fund for retail investors.
"It was really only about three and a half years ago that we made this fund open, and since then it has grown over that period. The retail wholesale investor base has become a meaningful portion of our total FUM, but I'd say we're still more heavily skewed to the institutional side," said Karunakaran.
The fund is calm waters in chaotic times, but derivatives also come with its own inherent risk. It takes a deft hand to navigate volatility mispricing well.
The Top 5 funds by inflow: Aussie and International Equities, and Fixed Income
Out of the Livewire 100 Top-Rated Funds, there were 42 funds on the list under the Australian equities category, and of these 23 funds gained net inflow over the three month period.
The highest inflows in the Australia equities category came through to Greencape Broadcap Fund from Greencape Capital. The fund drew in $114.2 million in funds over the three months to March 2021. The fund holds between 25 to 70 Australian shares or hybrid securities and also operates using derivatives.
Source: Morningstar/ Livewire.
For international equities, the highest inflows came through to T. Rowe Price Global Equity Fund I. The fund drew in $242.4 million in funds over the three months to March 2021. The fund is a growth-style fund with over 200 shares in its holdings over the mid- to large-cap range.
Source: Morningstar/ Livewire.
Within Livewire's 100 Top-Rated funds, fixed income total flows were $675.5 million with only 10% of the funds taking net outflows over the three months to 31 March 2021.
The highest inflows for this category was the PIMCO Global Bond Fund, a wholesale fund dedicated to government, corporate, mortgage and other global fixed interest securities.
This point-in-time data has been illustrative of the macroeconomic forces, such as low-interest rates driving money into fixed income instruments, and the desire for a stabilising force in times of volatility. As Morningstar has previously written, the inflows and outflows data aren't necessarily indicative of the performance of a fund. However, it certainly has the capability to capture the essence of the market for all its fears, the highs and lows and the rotations with market cycles.
For the purposes of this article, we have used data supplied by Morningstar, using the Morningstar fund categories and global broad categories group.
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Australia's 100 top-rated funds
Livewire's Top-Rated Fund Series gives subscribers exclusive access to data and insights that will help them make more informed decisions. Click here to view the dedicated website, which includes:
- The full list of Australia’s 100 top-rated funds.
- Detailed fund profile pages, with data powered by Morningstar.
- Exclusive interviews with expert researchers from Lonsec, Morningstar and Zenith.
- Videos and articles featuring 16 top-rated fund managers.
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Mia Kwok is a former content editor at Livewire Markets. Mia has extensive experience in media and communications for business, financial services and policy. Mia has written for and edited several business and finance publications, such as...