The Markets November 16, 2012

401(k) Participants Less Active in October

Average daily transfer volume among defined contribution (DC) plan participants was very low during October.
Reported by

According to the Aon Hewitt 401(k) Index, just 0.017% of total balances transferred daily while the trailing 12-month daily average—which continued to decline—sits at 0.024%. No days in October had transfer activity above normal while three days were actually more than 70% below normal daily levels.

Total net transfer activity in October amounted to $192 million, or 0.14% of total participant balances. While not the lowest level this year, October’s measurement of volume is still very low by comparison.

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

Within the Aon Hewitt 401(k) Index, net daily transfers favored fixed income funds for nearly three-quarters (71%) of the days in October, representing $123 million in total flows or 0.09% of total assets. When company stock activity is excluded, however, equity outflows account for just $16 million (0.01%) of participant balances.

Most of the outflows for October were from equities: company stock funds lost the most in the amount of $106 million (55%), while small U.S. equities accounted for $43 million (22%), and emerging markets had $17 million (9%) of the outflows. Midcap U.S. funds also lost $13 million (7%).

For net inflows in October, bond funds had the largest gains which totaled $66 million (34%). Among other fixed-income asset classes money market funds took in $26 million (14%). Lifestyle/pre-mixed funds had $45 million (23%) of inflows while the international asset class, which was the only class exclusively based in equities to see significant gains, received $37 million (19%).

On average, 62% of employee discretionary contributions were directed to equities for October, which is down slightly from September (62.1%). Participants’ overall equity allocation decreased half a percentage to reach 59.5% by the end of October. The decline in stock values was the largest factor in this decrease.

For more information, click here.

 

Data & Research November 16, 2012

Advisers Most Concerned With Risk Mitigation

Risk management continues to be a driving force behind registered investment advisers’ (RIAs’) approach to structuring client portfolios.
Reported by

For the majority of advisers, risk mitigation is more crucial than the need to outperform a benchmark, according to a white paper by Invesco. Similar to last year, 40% of RIAs indicate their predominant philosophy when managing clients’ assets is to manage risk, while fewer than one in four RIAs said their primary approach is to exceed a benchmark, deliver enhanced performance or deliver absolute return.

While risk management continues to be important, this year’s results indicate that concerns regarding risk may be hitting a plateau. A year ago, 61% of RIAs reported that their level of concern with managing risk was “very high.” This year, 44% of RIAs had a similar attitude.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

The lower level of concern among RIAs may be because of similar attitude shifts among their clients—16% of RIAs feel that their clients became less risk averse over the past 12 months.

When listing their clients’ top financial concerns, RIAs emphasized market volatility (60%), preservation of capital (59%), retirement planning (47%), downside protection (44%) and generating income (40%). These far exceeded wealth accumulation at 22%.

Although risk concerns may have reached their peak, the study results suggest RIAs still think risk aversion is at high levels. Thirty-eight percent said their focus on mitigating risk will increase in the next 12 months, which may reflect uncertainty with current economic policy and outlook for taxes.

Creating a blended portfolio of actively managed investments and exchange-traded funds (ETFs) is the most popular investment strategy used by RIAs to mitigate risk in client portfolios (62%). RIAs believe this investment approach adds a layer of risk insulation while allowing them to add value for their clients.

In addition, 56% of respondents said they are applying a more conservative asset allocation strategy to help mitigate risk in client portfolios; 51% are using alternative products/strategies; 45% frequently rebalance client portfolios; and 31% are using primarily passive investments like ETFs to mitigate client risk.

Alternatives are the most likely asset class to experience growth in the coming year, with RIAs turning to commodities and real estate to reduce correlations with traditional asset classes. With that said, some RIAs are skeptical about the cost of these products and their perceived lack of transparency and liquidity.

The Invesco Registered Investment Adviser (RIA) Division partnered with Cogent Research for this second annual study, conducted between August and September 2012. Cogent conducted the online, blind survey of RIAs across the U.S. with an average of $478 million in client assets.

«