Fixed Income Reigns in March 401(k) Transfers

Participants in 401(k) plans seemed to be looking for stability in their investments in March, moving $572 million from equities to fixed income over the month, according to the Hewitt 401(k) Index.
According to the Hewitt Associates data, such transfer activity – equities to fixed income – occurred during 68% of the trading days.
In general, Hewitt said, transfer volume was above average in March. On any given day of the month, 0.05% of 401(k) balances were traded on a net basis. The index also experienced above normal transfer activity on four days with money moving from equities into fixed income funds on all four days. Hewitt said three out of four days were at the beginning of the month amid significant market declines.
In February, participant transfers were relatively sanguine – but then “Terrible Tuesday” struck. On that day – February 27 – the relative net transfer activity for the Hewitt 401(k) index was 4.8 times the usual daily trading level.
Asset Class Activity
During the month, the three fixed-income asset classes received nearly 94% of all inflows, with bond funds experiencing the largest inflows. Nearly $342 million transferred into this asset class. Meanwhile, stable value funds were came in second, receiving nearly $220 million in total. Some $154 million was also shifted into money market funds.
Hewitt reported that March’s transfer activity also reversed the trend of strong inflows into lifestyle funds. March was the first time that the funds experienced outflows since June 2006, and lifestyle funds were the asset class with the largest outflows during the month, with more than $251 million transferred out.
As a continuation of the trend since last May, company stock funds again experienced outflows in March, with $165 million transferred. For the quarter, a total of $884 million flowed out of company stock funds. Large U.S. equity funds also experienced large outflows of $139 million in March, Hewitt said.
Due to the fixed-income oriented transfer activity in March, participants’ overall allocation to equity investments decreased slightly to 68.3% by the end of March, from 68.6% at the end of February. In terms of allocation, GIC/Stable value had 20.12%, Large U.S. Equity had 20.9%, and Company Stock had 19.4% of participants’ assets.
In terms of 401(k) participant-only contributions, there was no change in March – the equity allocation remained at 69.9% of the total participant-only contribution. Within equities, Large U.S. equities received 22.9% of participant contributions, while Lifestyle/Pre-Mix received 14.13%.
The full Hewitt report for March is here.