A surge in volatility in financial markets is pushing Australian investors towards safe haven assets like cash, gold and the US greenback.
The spate of major risk events globally has weighed on the minds of investors in recent months, and the changing sentiment is indicative of their reduced risk appetite, according to one of the biggest Australia-focused exchange-traded fund managers.
"What we are seeing at this moment is more risk aversion. People are tending to take risk off the table coming into volatile events," says Alex Vynokur, managing director at ETF manager BetaShares.
Global stock markets lost about $2 trillion in value on the day after Britain voted to leave the European Union last month, with the shock decision sparking a sharp repricing across asset classes.
The vote was the latest in a series of major events that have spooked investors over the past 12 months, including the US Federal Reserve raising interest rates in December for the first time in nine years, and recurring worries over China's economic slowdown.
That turmoil has also affected the Australian market, with the ASX's volatility index surging to a four-year high in August and again lifting beyond the crucial 30-point level in February.
"Investors have certainly become more cautious. The mindset has been one of risk management and we have seen that reflect in inflows for a variety of our funds," Mr Vynokur said.
BetaShares' gold ETF has nearly doubled in size in the last six months, he says, while its cash ETF has also swelled as investors leave more of their portfolio in cash.
Its Bear funds, which include short positions and are a popular tool to hedge risk, have also seen their best growth this year.
The ETF manager's fastest-growing product, however, has been its managed risk funds - which give equities exposure with much lower volatility.
"The broader flows in the ETF market indicate people are definitely moving towards more defensive," Mr Vynokur said.
Australia's ETF market has more than doubled in the last two years, with $23 billion in total funds under management at the end of May.
Self-managed super funds, which control about a third of the retirement savings pool in the country, were the early adopters, attracted by ETFs' low costs compared to managed funds.
Over the past two years, however, financial advisors have also jumped on the bandwagon.
Increasingly, some large fund managers are using ETFs to complement their active investment strategy.
The main growth driver has been access ETFs provide to international markets.
The need to look beyond domestic options has pushed investors into newer asset classes - currency, fixed income, oil, gold, agri-commodities.
It has also fueled the need for a larger variety of products for the local market.
BetaShares, which has become one of the larger players in Australia - along with global competitors BlackRock and Vangaurd - already has 27 funds under its fold but plans to launch offerings in global healthcare, banks, miners and agriculture.
"The message is starting to resonate, that we need to shift away from a domestic-minded investment philosophy," Mr Vynokur said.
