The Markets December 13, 2019

November Was the Lightest Trading Month for 401(k) Investors

There were no days of above-normal trading activity, according to the Alight Solutions 401(k) Index.

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November was the lightest trading month of the year for 401(k) investors, according to the Alight Solutions 401(k) Index. Average net daily trading activity was 0.013% of balances, and there were no days of above-normal trading activity.

Nineteen of the 20 trading days favored fixed income. Year-to-date, 87% of the trading days have favored fixed income and a mere 13% have favored equities.

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Asset classes with the most trading inflows in November were bond funds, accounting for 46% of the inflows, which totaled $182 million. This was followed by stable value funds (21%, $81 million) and target-date funds (12%, $47 million).

Asset classes with the most trading outflows in November were company stock (52%, $204 million), large U.S. equity funds (25%, $100 million) and small U.S. equity funds (8%, 33%).

After reflecting market movements and trading activity, the average asset allocation in equities ticked upward from 67.3% in October to 67.7% in November. New contributions to equities increased ever so slightly from 67.4% in October to 67.5% in November.

Asset classes with the largest percentage of total balance at the end of November were target-date funds, according for 29% of the balance and $65.2 billion, followed by large U.S. equity funds (25%, $56.5 billion) and stable value funds (10%, $21.4 billion). Asset classes that took in the most contributions in November were target-date funds (49%, $545 million), large U.S. equity funds (20%, $217 million) and international equity funds (7%, $77 million).

U.S. equity returns were strong in November, with small U.S. equities rising 4.1%, large U.S. equities rising 3.6%, and international equities growing by nearly 1%. U.S. bonds fell slightly by 0.1%.

The Markets December 13, 2019

Carbon-Sensitive Portfolios Perform as Well as Those That Aren’t

S&P studied companies demonstrating three levels of carbon sensitivity and found that all three held up in terms of stock performance; furthermore, S&P says these companies are well managed.

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Since 42% of investors in a study by Schroders said performance was a primary concern in sustainable investing, S&P decided to investigate whether carbon-sensitive companies perform as well as those that are not sensitive to greenhouse gas emissions.

S&P considered three levels of carbon sensitivity and found companies at all three levels performed as well as those not sensitive to carbon pollution. In fact, as S&P notes in its ‘Trucost’ of Climate Investing Report, “several academic studies document that companies with lower carbon emissions have higher profitability than companies with higher emission activity. Highly profitable firms are usually well managed and have the resources to adopt proactive environmental strategies as a way to decrease regulatory liabilities. In addition, optimizing energy use reduces operating expenses and improves profitability either through the use of new energy-efficient equipment or adopting energy conservation policies.”

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S&P took its study a step further to see whether other activities that generate pollution, such as air pollution, excessive water use and volume of waste generated, have an impact on stock returns. S&P found that they did not directly impact returns.

S&P concludes that “incorporating carbon intensity in a stock selection process does not detract from portfolio performance. All three carbon sensitive portfolios produce comparable returns to the baseline portfolio.”

At the 2019 PLANADVISER National Conference, speakers said that retirement plan sponsors are looking for advisers with environmental, social and governance (ESG) experience. They said there are many more ESG-labeled products on the shelf today, and the ESG theme is being programmed into many funds and investment products that do not explicitly carry an ESG label. Additionally, plan sponsors are running analyses of their existing fund menus to rate them from an ESG perspective, and using this type of thinking to help steer decisions about tailoring the investment menu.

The speakers added that some sponsors even think that ESG can drive outperformance.  In addition, a recent Morningstar report found that 72% of investors are interested in ESG investing.

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