Australian shares back in favour for investors during volatility
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Australian shares are back in favour despite ongoing market volatility in equity markets throughout 2022, with investors taking a long-term view when it comes to building and protecting their wealth, according to research by BetaShares.
The ETF provider recently conducted a poll of its investor database about their attitudes towards current market conditions, plans for their investment portfolio and overall sentiment towards the economy.
This survey data showed that investors are continuing to allocate more capital to their portfolio with ETFs building blocks for their increasingly sophisticated portfolios as they seek to build long-term wealth and achieve their financial goals.
The RBA announced a 0.50% rate rise to 2.35% after the board held its monthly meeting on September 6, the highest since early 2015, with annual inflation now at 6.1%. The increase marked the fifth in as many meetings with RBA Governor Philip Lowe conceding the bank had underestimated inflation and signalling further rate hikes to bring it back to its 2-3% target.
Furthermore, the VIX index – known as the fear index – which can be seen under the ASX ticker code XVI, showed equity volatility remains with little change in August. Its equivalent in the US, CBOE VIX, jumped 5 points.
Among key findings 87.33% of survey respondents said they plan to invest more in ETFs over the next 12 months, despite economic uncertainty and geopolitical tensions with just 12.67% saying no.
The BetaShares survey result is matched by the Australian ETF industry data which shows that net inflows have remained positive since the start of 2022. More than $8 billion of netflows have been recorded so far this calendar year.
In good news for local markets there’s been a shift towards Australian shares from international equities. At 64.9% Australian shares and International equities at 58.57% are the two exposures that most respondents are looking to add to their portfolio.
Australian ETF industry data shows $4 billion in YTD flows into Australian shares, higher than International equities with $2.2 billion in YTD flows.
BetaShares said international equities exposures have historically tended to receive a higher share of netflows compared to Australian shares.
“However, it’s clear that recent events – including the return of inflation, rising interest rates and geopolitical uncertainty – have forced a rethink amongst investors who are seeking out investment exposures closer to home,” the survey report noted.
“Investors have come home to domestic equities ETFs as they seek out value exposures that have tended to benefit from rising interest rates and inflation, as well as the increase in commodity prices associated with the Russia-Ukraine conflict.”
Ethical investments and fixed income also rated highly for investors seeking to invest more in ETFs over the next 12 months.
Investors are tipping that resource, energy and mining exposures will perform best over the next 12 months. Investors are also predicting the financial services and agriculture sectors to perform well over the next 12 months.
With its defensive qualities, Healthcare is also tipped to perform well as the possibility of central bank induced recessions around the globe grow in an effort to contain rising inflation.
Despite a rough few months for growth exposures, the tech sector is also tipped by a reasonably-sized minority to perform the best.
Climate change is the most compelling long-term megatrend for investors. Survey respondents indicate that efforts to address climate change is the most compelling long-term investment megatrend.
Staying with the environmental trend, electric vehicles and future of food were the second and third most compelling thematic for investors. Among other notable thematics were cybersecurity and robotics.
Despite all the doom and gloom of rising costs of living, house prices, sharemarket volatility and economic uncertainty, investors surveyed were largely comfortable with their financial situation for now.
Investors surveyed mostly reported feeling confident or neutral about their financial situation. However, BetaShares noted it was clear that questions about inflation and the cost of living were playing on the minds of investors with 65% of respondents reporting this as their top concern.