The Markets February 10, 2014

DC Transfer Activity Steady in Jan.

Average daily transfer activity for defined contribution (DC) plan participants remained unchanged in January compared with the previous month, according to the Aon Hewitt 401(k) Index.
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Overall, defined contribution plan participants’ daily transfer volume averaged 0.025% of total daily balances, the same as in December 2013. This is slightly below the 12-month daily average of 0.028%. Three days in January had transfer activity above normal levels.

The index defines a normal level of relative transfer activity as when the net daily movement of participants’ balances as a percent of total 401(k) balances within the index equals between 0.3 times and 1.5 times the average daily net activity of the preceding 12 months.

Despite equity markets getting off to a rough start in 2014, the index finds that DC plan participants continued to favor stock funds in January. Out of the total net transfer activity of $306 million (0.19%) in January, $212 million (0.13%) flowed into diversified equities (equity assets excluding company stock). In addition, employee discretionary contributions to equities, another measure of participant sentiment, increased to 65.6% in January, up from 64.1% in December 2013.

Equity markets were down in January, with emerging markets being the weakest link. The MSCI Emerging Markets Index returned -6.5% for the month of January. U.S. equities also declined, as the S&P 500 Index dropped 3.5% during the month. Non-U.S. equities declined, with the MSCI All Country World ex-U.S. Index posting a January return of -4.5%.

In spite of these poor returns, investors continued to transfer money into equities. International funds had the most net inflows, with gains of $83 million (27%). Large U.S. equity funds followed, with a gain of $59 million (19%). Mid-U.S. equity funds had $42 million (14%) of the total monthly inflows.

The fixed-income market, as measured by the Barclays Capital Aggregate Bond Index, rallied to start the year, gaining 1.5% as the yield on the 10-year Treasury fell by 39 basis points. Bond funds saw moderate inflows of $56 million (18%).

Net outflow activity in January was led by company stock funds, with $179 million (58%); GIC/stable value funds, with $78 million (26%); and money market funds, with $28 million (9%) transferring out.

On average, participants’ overall equity allocation slightly decreased to 64.7% at the end of January, down from 65.2% in December 2013.

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