2017 was the slowest trading year in the 20 year history of the Alight Solutions 401(k) Index.
According to the latest data published by Alight Solutions, there were 13 days of above-normal daily transfer activity in 2017—less than half the number in 2016 (28) and the trailing 5-year and 10-year averages (30 and 32 days, respectively).
“Part of the light trading activity can be explained by the prevalence of target-date funds, the largest asset class in the 401(k) Index,” the firm reports. “The percentage of assets invested in target-date funds grew in 2017 from 24.1% at the beginning of the year to 27.2% by the end of the year. Much of this growth can be attributed to the fact that target-date funds receive the lion’s share of new 401(k) contributions.”
In 2017, 43% of all contributions were made to target-date funds.
“Strong investment returns also likely contributed to the light trading activity,” Alight reports. “2017 proved to be a generally positive year for investors. Large cap U.S. equities (represented by the S&P 500 Index) and international equities (represented by the MSCI All Country World ex-U.S.A. Index) provided strong returns with little volatility throughout the year.”
On the fixed-income side, bonds (represented by the Bloomberg Barclays Capital U.S. Aggregate Bond Index) and small cap U.S. equities (represented by the Russell 2000 Index) both experienced periods of volatility. But in the end both still provided positive returns over the last 12 months.
“During the 20-year history of the 401(k) Index, trading activity typically spikes when there is a downturn in the market,” confirms Rob Austin, head of research at Alight. “In general, 2017 saw the markets steadily rise, so rather than rebalancing, 401(k) investors stayed the course and enjoyed positive market returns.”