Australian active fund managers have faced a significant capital exodus, losing nearly $22 billion over the past five years as investors increasingly favour cheaper index-tracking products. This substantial shift is largely attributed to prolonged underperformance. In the last financial year alone, local equity funds saw $6.6 billion in outflows, partly due to fund closures. Conversely, funds tracking Australian indices attracted a record $15.5 billion in the same period, accumulating $40.2 billion over five years, according to Betashares analysis of Morningstar data. Betashares is one of Australia’s largest providers of index funds.
The primary driver behind this exodus is persistent poor performance, deemed unusual given market conditions often seen to favour stock pickers. Tom Wickenden, an investment strategist at Betashares, noted that factors like “heightened single-stock volatility” typically benefit active management, yet contributed to their underperformance. Only a quarter of active Australian large-cap equity managers outperformed the S&P/ASX 200 in the 12 months to June 30, marking the weakest result in seven years. This trend led Australian Unity to close Platypus Asset Management after its flagship Australian equities fund significantly lagged the ASX 300 Accumulation Index.
Active managers have also grappled with market concentration, where the ASX’s top 20 companies now represent 63.4 per cent of the ASX 200. Morningstar’s Zunjar Sanzgiri highlighted that passive funds’ mandates “keep investing into these stocks,” creating momentum that active managers may avoid. Sean Sequeira, chief investment officer of Australian Eagle Asset Management, which manages over $1 billion across two Australian equity funds, believes opportunities may emerge as performance broadens beyond major banks and miners. Furthermore, recent tax concession changes by the Albanese government have intensified demand for index-tracking products, making ETFs more attractive. Australian ETFs attracted a record $7 billion in August alone.
