Investors were seeking out ASX shares in June. Here’s why

Why were investors seeking out ASX dividend shares specifically last month?

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Key points

  • Last month was a tough one for ASX shares, with the ASX 200 losing 8.9% 
  • New data shows that managed funds saw an exodus in funds over the last quarter 
  • But ASX shares were the only asset class to receive new inflows. Let's look at why... 

For ASX investors, June wasn’t exactly a great month to have money tied up in the share market. Over the month just gone, the S&P/ASX 200 Index (ASX: XJO) ended up losing a painful 8.9%. That looks more like a one-year loss than a one-month loss, but that’s just life on the ASX.

With a one-month loss like that, you might be forgiven for thinking that investors were staying well away from ASX shares in June. But new data shows that was not the case.

According to a new report from global managed fund network Calastone, it was a tough quarter for Australian managed funds, with net outflows of $2.05 billion across all asset classes. That represents the largest quarterly outflow since Calastone began collecting records in 2019.

However, despite these outflows, inflows into ASX shares were positive, the only sector to stay in the green. Here’s some of what the report said:

Investors were negative on every category of equity fund in June, except Australian equities. Funds focused on all different regions of the world, sectorfocused funds, even ESG, all saw outflows in June. Global funds bore the brunt of the selling, with outflows of A$120m, while specialist sector funds, which mainly focus on infrastructure assets were also hard hit…

By contrast, Australian equities were a beacon of relative stability. Net inflows in June totalled A$36m, though this was around one tenth of the average monthly inflow over the last two years.

So why were investors selling everything from ethical investments and infrastructure to bonds and international shares, but not ASX shares?

Why were investors chasing ASX shares in June?

Here’s how Calastone managing director Teresa Walker explained it:

The relative resilience of Australian equities reflects the commodity and banking bias on the market. The Australian stock market is one of the highest yielding in the world and that has proven a big draw in times of rising inflation and interest rates.

So it’s dividends that have kept investors coming back to ASX shares, it seems. This isn’t hard to understand. There’s arguably no time that investors appreciate the certainty of yield in the form of direct cash payments more than when volatility is spiking and share prices are jittery.

That certainly describes the ASX investing environment rather accurately over the past few months.

There are also the unique benefits of franking that our ASX dividend shares offer too that might have further enticed investors.

The past 12 months have also seen many ASX dividend shares up their game when it comes to their payouts. We’ve seen big dividend increases from ASX banks like Commonwealth Bank of Australia (ASX: CBA) for one. In CBA’s case, this ASX bank paid out a total of $2.75 in dividends per share over FY2022. That was a pleasing increase over the $2.48 it doled out in FY2021.

Not only have the banks been upping their dividends, but so have the ASX’s biggest miners. Both BHP Group Ltd (ASX: BHP) and Fortescue Metals Group Limited (ASX: FMG) forked out the largest annual dividends in their history over FY2022. Even today, Fortescue shares have a trailing dividend yield of 17.58% on current pricing.

So considering all of that, it’s perhaps no surprise that investors were looking to ASX shares above other asset classes last month.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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