The Markets December 11, 2008

DC Participants Flee Equities in Q308

Defined contribution plan activity rose as participants reacted to economic turmoil by reallocating their portfolios away from equity assets to fixed-income funds, according to The Callan DC Index report for third quarter.
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A Callan press release said total Index turnover reached 1.13% for the quarter ended September 30— well above the quarterly historical average of 0.78%. Stable value, money market, and domestic bond funds collectively captured nearly 80% of inflows. Target-date funds were the only exception to participants’ flight to fixed income, with an inflow of 18.6%.

Callan said inertia among younger investors, who compose a large share of target-date fund participants, was in effect in the third quarter, and a strong correlation exists between portfolio size and investor activity.

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The Index, down 8.04%, outperformed the average 2030 target-date fund, which lost 11.6% in the third quarter. High equity allocation in 2030 target-date-funds—85% compared with 66.7% in the typical DC plan—proved a significant liability this quarter, Callan said.

The Index also outpaced the average corporate defined benefit plan, which returned -8.35% for the quarter.

The Callan DC Index tracks the asset flows and performance of approximately 70 participant-directed plans composed of more than 800,000 participants and $50 billion in retirement assets.

Products December 11, 2008

Vanguard to Put Out Small Cap International Index

The Vanguard Group announced its intention to offer its first international small-cap index fund.
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A Vanguard news release said the Vanguard FTSE All-World ex-US Small-Cap Index Fund will offer three share classes (Investor, Institutional, and ETF) and is expected to be available in the first quarter of 2009.

The target benchmark for the fund is the FTSE Global Small Cap ex US Index, a market-capitalization-weighted index of stocks traded on markets outside the United States, the investment firm said. The fund will invest in a broadly diversified sampling of securities from the benchmark, which comprises more than 3,300 stocks of companies in 47 countries.

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The fund’s ETF Shares have an estimated expense ratio of 0.38%. The Investor Shares, which will require a $3,000 minimum initial investment, have an estimated expense ratio of 0.60%, while the Institutional Shares have an estimated expense ratio of 0.35% and a $5 million minimum initial investment requirement.

To help defray the transaction costs associated with investing in small-cap international stocks, the fund will assess a 0.75% fee on purchases and redemptions of the Investor and Institutional Shares, Vanguard said.

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