Flows into the retail-friendly exchange-traded fund sector slumped to the lowest level since the pandemic in June as the everyday investors who powered the post-pandemic boom increasingly opted for the sidelines.

Amid a bear market on Wall Street and the worst month on the ASX since March 2020, net flows into local ETFs crashed to $523 million in June, down two-thirds versus one month earlier, according to ASX data. Just seven months ago investors sloshed $2.7 billion into the 200+ exchange-traded products listed on the ASX.

Investors exited battered global equities, yanking $123 million out of sector ETFs, led by Magellan’s Global Fund. Flows have been declining for months, hitting $489 million in the June quarter, down sharply from $1.6 billion in the three months to March.

Market participants watch money moving in and out of the ETF sector to gauge sentiment among retail investors, who often use the easy-to-access products. Mass selling among this cohort, sometimes called capitulation, is thought by some to signal the end of bear markets.

“The only person who hasn’t sold is households,” said Scott Rubner, managing director at Goldman Sachs in a late-May interview discussing US equity markets. “Everybody else on the professional investor side has sold, is short or has no more to sell.”

Australian equities are proving more resilient as investors pin hopes on the heavyweight mining and bank sectors to outperform amid rising rates and commodity-price driven inflation. Net flows totalled $513 million in June, down from $891 million recorded in May.

After months outpacing global equities, Australian shares gave up some of the lead in June as the benchmark ASX 200 fell 8.9% in its worst month since March 2020. Financial services and resources each tumbled 12%.

Banks slumped as accelerating rate hikes raised fears bad debts and a decelerating economy would outweigh any benefit banks from wider margins. Investors ditched miners as global commodity prices retraced post-invasion gains amid fears a recession would sap demand for fuel and metals.

The S&P/ASX 200 is down 13% this year, versus 20% for the US S&P 500.

Flows slowed to a trickle across a suite of multi-asset index funds popular with investors looking for diversified equity market exposure.

Investors added $32 million to the class of funds, which includes popular Vanguard Diversified High Growth, down from the $200 million a year earlier.

Managed funds also hit by big withdrawals

Withdrawals also rocked managed funds which saw inflows to equity strategies hit the lowest level since the first quarter of 2020. Managed funds are not listed on an exchange and are popular with advisers.

Investors pulled $253 million from equity managed funds in June, according to data from the Calastone Network. Withdrawals hit $2.05 billion for the quarter, the largest on records going back to the start of 2019.

“Signs of optimism are scarce as the global bear market shreds investor sentiment," says Teresa Walker, managing director of Australia and New Zealand at Calastone. "June was the first time we have seen investors withdraw capital from every equity category (except Australian) and every asset class.” 

In the worst month on record going back to the start of 2019, investors pulled $984 million from fixed income managed funds.