Singapore records S$1.3 billion inflow of funds in Q2, led by higher allocation funds: Morningstar

[SINGAPORE] Funds in Singapore recorded net inflows of S$1.3 billion in Q2 2026, driven by an increase in allocation funds, data from Morningstar showed.

While this was down from S$3.2 billion in Q1, the industry saw S$4.5 billion in net inflows during the first half of 2026 – a level that is “significant compared to the kind of historical numbers that we are seeing”, said Arvind Subramanian, senior analyst, manager research at Morningstar, in a briefing on Thursday (Sep 3).

Allocation funds – which invest across asset classes such as bonds and equities – attracted S$1.8 billion in net inflows, up from S$1.5 billion in Q1.

Subramanian noted increasing underlying interest in Singapore equities today, even as equity funds posted S$93.3 million in net outflows in Q2, reversing from Q1’s inflows of S$1.5 billion.

“Singapore equity allocations have (historically) tended to be very small,” he said. “Investors have tended to allocate more globally or outside of Singapore into Asian markets.”

The growing interest could therefore partly reflect a reversal of Singapore investors’ historically low allocations to their home equity market, he said.

At the same time, new funds and the Equity Market Development Programme (EQDP) are also driving inflows, said Subramanian.

Singapore used to predominantly be a large-cap-heavy market, but with EQDP, allocations to small and mid-cap counters have risen, he said.

“You’re also now seeing broader returns from the mid-cap and small-cap index in Singapore,” said the analyst.

Fund managers are also increasing holdings in Singapore funds as they look for more avenues to find alpha opportunities.

Subramanian said almost all managers who have a big equity fund or a big Singapore equity presence are either looking to hire a Singapore-focused analyst or have already added more resources to track the market.

But he warned that as funds grow larger, they may want to increase their allocation to small and mid-cap stocks, which tends to be less liquid.

“A large fund that’s focused on a very narrow or small category can be hard to deliver out to payments over the long term,” he said.

Meanwhile, the Singapore market needs to show that it can keep up with strong inflows – Subramanian said most managers are eyeing more investable opportunities, which includes more initial public offerings across more sectors.

“They’re hopeful that the number of IPOs or the investment opportunities start to increase, which can then keep pace with the kind of increase in inflows that they’re seeing,” he said.

Overall, performance may be driving some inflows, which “always tends to be the case in all markets”, Subramanian said.

“If that slows down or other markets start showing very strong returns, you could see some rotation, but at least from a quarterly number perspective that we are seeing so far, it looks like Singapore equity is still attracting a reasonable share,” he said.

Singdollar bond funds

Meanwhile, fixed-income funds saw net outflows widen to S$288.9 million in Q2 from S$97.2 million in Q1.

This is “unsurprising” given the volatility in bond markets today, Subramanian said.

“No matter how attractive yields or valuations are, if fixed income tends to be volatile, investors don’t really prefer it because they prefer the stability for an asset class like fixed income,” he said.

Lower short-term interest rates in Singapore also means that it is not as lucrative for investors to park their idle money in money market funds.

Nevertheless, Subramanian noted a preference for Singapore bonds over US or global fixed income given the lower volatility, even if yields are lower.

“It comes back to the investor mindset when they look for fixed income,” he said.

“As yields go up, fixed income has performed less like fixed income and tends to be very volatile, and that’s not something investors have tended to like.”