In 2024, the global financial landscape underwent significant changes, driven by central banks' strategic decisions to reduce interest rates. This move came as inflation stabilized across major economies, leading to notable shifts in investor behavior. The latest annual review from Calastone highlights these trends, revealing substantial inflows into bond funds and a cautious approach towards equities. Investors poured a net $52 billion into bond funds, marking record highs in various regions. Meanwhile, equity markets saw modest inflows of just $3.5 billion globally, with North American and global funds emerging as top performers. Active versus passive fund preferences also shifted, with active bond funds gaining favor while passive equity trackers dominated. ESG funds showed signs of recovery, and real estate funds continued their downward trend.
The year 2024 was pivotal for global investors as central banks embarked on a new chapter of monetary policy. After years of battling inflation, central banks finally began reducing interest rates, signaling a shift toward more accommodative policies. This change had a profound impact on how investors allocated their assets. Bond funds, traditionally seen as safer havens, attracted significant attention. Inflows into these funds surged across Asia, Europe, the UK, and Australia, reaching unprecedented levels over a six-year period. Since 2019, bond funds have consistently outperformed other asset classes in terms of cash injections, reflecting growing investor confidence in fixed income securities.
Equity markets, despite experiencing robust growth, did not see a corresponding surge in fund inflows. The total inflows amounted to just $3.5 billion globally, a stark contrast to the soaring stock prices. This discrepancy suggests that investors remained cautious, possibly due to lingering economic uncertainties. Among equity funds, global and North American funds were the frontrunners, attracting $18 billion and $9 billion respectively. European funds witnessed their first inflows in six years, although Asia-Pacific and UK-focused funds continued to face substantial outflows. Notably, UK equities suffered the most, with net outflows totaling $13.3 billion.
Investor preference for passive versus active management varied significantly between asset classes. In the equity space, passive index trackers were overwhelmingly favored, receiving $17.5 billion in investments, while active funds experienced withdrawals of $14 billion. However, this trend reversed in fixed income funds, where active managers secured 75% of the inflows, amounting to $39 billion. Asian and Australian investors played a crucial role in driving demand for active bond funds. This divergence underscores the differing strategies investors adopt based on market conditions and asset performance.
ESG (Environmental, Social, and Governance) funds also saw a shift in sentiment. While outflows from ESG equity funds slowed down compared to previous years, they still recorded a net withdrawal of $2.9 billion. Non-ESG equity funds, on the other hand, added $6.4 billion. Real estate funds faced another challenging year, continuing their six-year streak of outflows, losing $615 million in 2024. Mixed asset funds, which blend various asset classes, saw inflows decline to $5.6 billion, their lowest level in six years. Despite this, mixed asset funds have maintained positive flows for three consecutive years, outpacing equities in this regard.
The changing dynamics in global investment patterns reflect a broader shift in investor priorities and risk appetites. As central banks adjust their policies, investors are increasingly seeking stability and long-term growth opportunities. The strong performance of bond funds and the cautious approach to equities highlight the ongoing search for balance in an uncertain economic environment. Active versus passive fund preferences further illustrate the nuanced strategies investors employ to navigate different asset classes. Overall, 2024 marked a year of transition, setting the stage for new trends and challenges in the coming years.
