Callan DC Index Turns Around in Q209

After six consecutive quarters of losses, the Callan DC Index posted a gain of 12.26% in the second quarter of 2009.

According to a Callan analysis, the strong performance of the Index reflects well-timed transfers by participants back into equities. For the first quarter since the end of 2007, stable value saw net outflows, as DC participants sought to increase equity exposure in order to benefit from the market rally. Gains from this flow activity equaled 0.17% for the quarter.

Turnover activity rose to above-average levels while still very modest at 0.94% of total DC balances for the quarter. The largest inflows were to domestic large-cap, target-date, and domestic/global balanced funds.

Still, Callan said, the equity allocation of DC plans remained materially lower than that of the typical 2030 target date fund (59% and 78%, respectively). Callan said that unlike DC investors, the typical target date manager engaged in rebalancing throughout the 2008 market collapse—which heightened losses during the second half of last year, but also increased gains during the recent recovery. The typical 2030 target date fund outperformed the Index during the second quarter by an average of nearly five percentage points.

The index ended last quarter ahead of the average corporate defined benefit (DB) plan, which returned 11.49% gross of fees; but DB plans still outperformed the Index by more than two percentage points per year since inception in January 2006, the analysis said.

After the second-quarter turnaround, growth in DC plan balances since 2005 have turned positive again, Callan said. Participants in the Callan DC Index now enjoy positive annualized asset growth of 0.6% over that period, compared to the first quarter, when annualized asset growth was in negative territory (-3.22%).

However, Callan said growth in DC assets since 2005 remains wholly attributable to contributions by plan sponsors and participants. While annualized growth from total return was -3% over the period, growth from net flows was 3.6%.