The Markets July 17, 2018

Fixed Income Favored in 401(k) Trades During June

According to the Alight Solutions 401(k) Index, June was a slow month for trading in defined contribution plans; when 401(k) investors made trades, they tended to favor fixed income.

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The June 2018 update of the Alight Solutions 401(k) Index shows just one day of above-normal trading activity during the month.

As June progressed, 401(k) investors continued movement away from equities, the index shows, with 13 of 21 days favoring fixed income funds. On average, a modest 0.013% of balances were traded daily.

Year-to-date there have been 29 days with above-normal trading activity, suggesting that the month of June brought back a bit of a sense of tranquility for investors after a difficult start to the year. Other index data shows trading inflows mainly went to small U.S. equity, mid U.S. equity, and stable value funds, while outflows were primarily from target-date funds (TDFs), emerging markets, and international funds.

By asset class, small U.S. equity funds received the most inflows, netting 41% of the monthly inflow volume to the tune of $153 million. Midsized U.S. equity funds garnered 21% of the inflows ($78 million), and stable value funds received 17% of the flow ($64 million). On the flip side, 36% of the outflows ($133 million) came from target-date funds, 23% from emerging markets ($84 million), and 14% from international funds ($53 million). Important to note, target-date funds remain the most prevalent asset class in 401(k) plans, with 27% of the total market volume, according to the index.

At the end of June, asset allocation in equities were in line with May, with 68.5% of assets in equities. At the same time, 68.1% of new contributions were invested in equities at the end of June, up slightly from 68% in May.

The index update explains that domestic equities experienced slightly positive market returns for the month, with both large U.S. equities (represented by the S&P 500 Index) and small U.S. equities (represented by the Russell 2000 Index) up over 1%. U.S. bonds (represented by the Bloomberg Barclays U.S. Aggregate Index) fell -0.1%, while the International equities (represented by the MSCI All Country World ex-U.S. Index) fell close to -2%.

Additional findings are available here.

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