The Markets April 20, 2009

401(k) Participants Dip into Equity Pool in March

As the stock market moved into positive territory in March, 401(k) participants also changed the direction of their transfers, according to the results of the Hewitt 401(k) Index.
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During the first half of the month, after the Dow Jones Industrial Average (DJIA) closed near a 12-year low, transfers were strongly fixed income-oriented, but a few days after the stock market turn on March 10 (when the DJIA closed up 5%), 401(k) participants began to move in the opposite direction. About two-thirds of the days during the second half of the month were equity-oriented, Hewitt said.

However, transfer amounts were larger during the first half of the month compared with the rest of the month (all six days with above-normal levels of transfer activity in March occurred during the first half of the month), so for the month of March the total amount transferred was still fixed income-oriented, with $440 shifted from equities to fixed-income investments. During the first quarter of 2009, a total of $1 billion moved from equities to fixed-income investments.

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According to Hewitt data, in March, GIC/stable value funds received 90% of the inflows, with $502 million moving into this asset class. It is also the biggest winner for the quarter—nearly $1.1 billion moved into this asset class. Money market funds also received $53 million in inflows during March, and $78 million in the first quarter.

Company stock experienced $117 million in outflows during March. Large U.S. equity funds had $89 million in outflows, followed by balanced and lifestyle funds with outflows of $83 million each.

Throughout the quarter, the biggest losers were large U.S. equity ($284 million in outflows), international ($269 million in outflows), balanced ($262 million in outflows), and lifestyle funds ($216 million in outflows).

Due to the market surge in March, participants’ overall equity holdings went up slightly from 47.7% at the end of February to 49.1% at the end of March; however, employee-only equity contributions declined further from 57.2% to 55.7%.

GIC/stable value funds took in 26.07% of participant contributions for the month, followed by lifestyle/pre-mix (19.21%) and large U.S. equity (16.79%).

The Hewitt data is available here.

Products April 20, 2009

Schwab Makes Target Funds Enhancements

Charles Schwab Investment Management, the asset management arm of the Charles Schwab Corporation, announced changes to its target-date mutual funds to enhance the portfolios and reduce expenses.
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According to a press release, enhancements to the Target Funds include:

  • reducing expense ratios by an estimated 13 to 23 basis points;
  • higher fixed-income exposure beginning 10 years from the target date to help increase protection of principal and generate periodic income approaching and during retirement;
  • adding third-party funds managed by third-party investment managers for improved style diversification and access to additional asset classes;
  • higher equity exposure in early years of funds, with the goal of building wealth before target date;
  • extending the glide path for an additional five years to continue 20 years after target retirement date.

“We conducted a strategic review of our Schwab Target Date mutual fund lineup to evaluate the best investment approach given market conditions and investors’ changing long-term expectations and current interest in more conservative investment options,” said Peter Crawford, senior vice president for investment management services, in the announcement.

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