The Markets February 22, 2010

Global Mutual Funds Make Turnaround in 2009

Equity/mixed, bond, and other long-term mutual funds around the world captured $900 billion in net flows during 2009, according to Strategic Insight (SI), an Asset International company.
Reported by

That represents a remarkable turnaround from 2008’s $700 billion in net redemptions, SI noted.

The U.S. led the way with inflows of $503 billion for the year, followed by international cross-border funds in Luxembourg/Dublin, as well as offshore funds domiciled in Cayman Islands, British Virgin Islands, Bermuda, etc., with $211 billion in net inflows. Funds in Europe posted a $102 billion inflow, while Asia saw a $55 billion infusion into long-term funds.

While bond funds were the hot ticket in the U.S. ($424 billion), the international cross-border and offshore market saw most of its inflows in equity funds ($108 billion).

According to SI’s data, money market funds experienced net redemptions globally in 2009. The U.S. posted a $524 billion net outflow from money market funds, while Europe posted a $93 billion net outflow. Asia saw a $3 billion boost to money market funds for the year.

SI said that starting in January, its Global Mutual Fund FlowWatch will include the markets of Belgium, the Netherlands, Austria, Portugal, Czech Republic, China, Singapore, Thailand, Malaysia, Indonesia, and the Philippines.

Information about the report is available at www.sionline.com.

Data & Research February 22, 2010

Market Continues to Move Participants

Once again, 401(k) participants that were inclined to rebalance their accounts tended to chase the market.
Reported by

And while it won’t come as a surprise to most advisers, according to the Hewitt 401(k) Index, transfers were strongly equity-oriented during the first half of the month (when markets were higher), with participants moving monies out of fixed income investments and into equities during 9 out of 10 days.  However, as the market retreated mid-month, 401(k) participants also changed the direction of their transfers, and moved monies back into fixed income investments during 8 out of 9 days in the second half of the month.

While the vast majority of participants never rebalance their 401(k) investments, those who do have consistently demonstrated an inclination to move after the market.  That said, the total transfer in January was equity-oriented, with $81 million shifting from fixed income investments to equities.  Stable value funds experienced the largest outflows, with $224 million moving out of this asset class, though company stock funds also had significant outflows ($113 million).      

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Most of those transfers moved to lifestyle funds, which received the largest inflows ($135 million), and bond funds ($103 million, followed by large U.S. equity ($35 million), international ($31 million) and small U.S. equity ($29 million).   

On average, 0.04% of balances transferred on a net daily basis in January, slightly higher than the latter half of 2009, where transfers averaged 0.03% of balances.  In addition, 2 days of the month experienced what Hewitt characterized as “above normal levels1 of transfers; January 4 (when 0.09% of balances transferred, a little more than twice normal levels), and January 20 (when 0.07% of balances transferred).  Transfers favored equities on both of those above normal trading days.

Participants’ total equity allocation was down slightly to 57.8% at the end of January, from 58.1% at the end of December 2009, though Hewitt said that that was mainly due to negative returns in the stock market.  That said, employee equity contributions increased slightly from 59.6% at the end of 2009 to 60.4% in January 2010.

GIC/stable value represented nearly 27% of the total portfolio in the Hewitt 401(k) Index, with large US equity next-best represented with just over 17% – and company stock just behind with 14.37%.  After that, the other allocations ran:

  • 11.31% lifestyle/pre-mixed
  • 7.09% – international
  • 5.92% – bond
  • 5.39% – balanced
  • 4.80% – small US equity
  • 2.54% – self-directed/brokerage window

     

1 A “normal” level of relative transfer activity is when the net daily movement of participants’ balances as a percent of total 401(k) balances within the Hewitt 401(k) Index equals between 0.3 times and 1.5 times the average daily net activity of the preceding 12 months. A “high” relative transfer activity day is when the net daily movement exceeds two times the average daily net activity. A “moderate” relative transfer activity day is when the net daily movement is between 1.5 and two times the average daily net activity of the preceding 12 months.

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