401(k) Participants Pull Out from Equities

While individual investors might have stayed strong in equity holdings (see Individual Investors Remain Optimistic about Equities), 401(k) participants do not demonstrate as much equity stamina.

For the month of June, $158 million moved from equity to fixed-income funds, mainly from international and large U.S. equity into GIC/stable value and company stock, Hewitt data show. As of the end of the month, 23.83% of participants’ 401(k) assets were allocated to GIC/Stable Value funds and 18.79% of assets were held in Large US Equity offerings.

Lifestyle/Pre-mix funds gained nearly 21% of overall contributions in June, followed by Large US Equity funds attracting 18.22%, and GIC/Stable Value winning 16.23% of overall contributions. Participant-only contributions followed suit: Lifestyle/Pre-mix (21.19%), Large US Equity (19.46%), and GIC/Stable Value (17.15%).

The monthly activity continues the trend of 401(k) participants moving away from equity investments during the first half of 2008, according to Hewitt. A sum of $3 billion (2.6% of total assets) shifted out of equity funds on a net basis during this period.

The vast majority of outflows occurred in the first quarter, with $2.8 billion transferring from equities to fixed-income investments. The outflows were only marginal during the second quarter ($208 million).

Net transfers were fixed-income-oriented during five out of six months in the first half of the year, and participants shifted monies from equity to fixed income funds during 64% of the days.

Transfer Activity in First Half of “08

Large U.S. equity funds saw the largest net outflows during the first half of 2008, with a total of $910 million transferring out of these funds, according to the Hewitt 401(k) Index. The majority of the outflows ($879 million) occurred during the first quarter.

At the same time, $798 million was transferred out of international funds on a net basis, again mostly during the first quarter ($756 million). Meanwhile, the fixed-income asset classes received nearly all of the net transfers with GIC/stable value funds capturing $2.1 billion of participants’ transferred assets. Bond and money market funds received $833 million and $245 million of the net transfers, respectively.

Due to both market weakness and participant transfers, according to Hewitt, the overall equity allocation in 401(k) index was 62.5% at the end of June, down from 66.9% at the end of last year.

The level of transfer activity was normal throughout the first half of the year, with the exception of higher transfer levels in January.

The Hewitt 401(k) Index for June is here.