Investors are buying stocks and gold to profit from the coronavirus

April 19, 2020

Canberra (Apr 19)  Australians kept investing during the sharemarket panic in March, with turnover in exchange traded funds (ETFs) dealing in Australian equities topping $9 billion.

Financial research firm Rainmaker Information said that was more than three times the figures for January and February.

The turnover in ETF products centred on international equities, meanwhile, doubled to roughly $5 billion.

Overall, ETF products turned over $17.8 billion in March compared to $7.2 billion the previous month, but the value of all exchange traded funds declined by an average of 10 per cent to $57 billion.

ETFs are funds that invest in a large range of stocks, rather than single companies, and split up their holdings among many investors – allowing small investors in particular to get widely diversified exposures.

The high market turnovers showed “that there are people out there who are taking the current market falls as a buying opportunity,” said Alex Dunnin, executive director with Rainmaker.

Rainmaker’s statement reported “Australian equities were popular with net inflows of $1.2 billion, with the largest inflows going into market cap index products”.

Market cap index products weight their investments in individual stocks according to the size of companies – meaning they invest more money in companies with large market capitalisations. (This reflects the ‘swing to quality’ previously reported by The New Daily.)

And super funds are getting in on the action, too.

“Some super funds use exchange traded products to get their portfolios balanced before they research particular stocks to get that result,” Mr Dunnin said.

By buying ETFs when they see the market starting to move, super funds can increase their market exposures before they have chosen the particular stocks in which to invest.

As individual stocks are chosen, funds can sell their ETF holdings to maintain their chosen weightings for each type of portfolio.

Fixed-interest fears

“One would have expected fixed-interest products to be popular in this period, but the reported dislocation in fixed-interest markets seemed to have [had] an effect,” said Rainmaker investment chief John Dyall.

As a result of that negative news, investors sold out of fixed interest.

“Fixed interest had the highest net outflows, losing $770 million, a significant turnaround from the $488 million it gained in February,” Mr Dyall said.

Gold shines

Interestingly, investors were using ETFs to get liquidity and buy into physical gold as well as stocks.

Rainmaker found the single product with the largest net outflows was the Australian High Interest Cash Fund, which lost $257 million or 13 per cent of funds under management.

The gold buyers are active. Source: Getty

On the other hand the largest single inflow was to the ETFS Physical gold product, which experienced net inflows of $135 million as investors sought the yellow metal for safety.

When all types of investments were considered, ETFs experienced a positive inflow of $360 million.


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