Despite the positive stock market performance during the month, participants inclined to transfer demonstrated a strong disposition toward fixed-income options, according to the results of the Hewitt 401(k) Index. Approximately $285 million moved from equities to fixed-income investments during the month, and 70% of the days during the trading-shortened (19 trading days) month experienced fixed income-oriented transfers.
Hewitt noted that both GIC/stable value funds and bond funds received large inflows during the month; the former category pulling nearly half (47%) of the inflows, with $148 million transferring into this asset class. Bond funds received net transfers of $116 million, 37% of the inflows.
In contrast, both large U.S. equity and international funds had outflows of $110 million, followed by company stock ($39 million) and emerging market funds ($24 million).
On average, just 0.04% of balances transferred on a net daily basis in February, though there were only two above normal1-levels of transfer activity—and that on two consecutive days during the month (February 5 and 8)—directly following a substantial market drop. On those days, trading was approximately twice and one-and-a-half times the normal transfer volumes.
Despite those moves—and doubtless aided by the market’s rebound—participants’ overall allocation to equity investments was 58.1% at the end of February, marginally higher than the 57.8% at the end of January (see “Market Continues to Move Participants”). That said, stable value continued to be the single largest holding, representing 26.3% of the overall portfolio. Other significant allocations included:
- 17.16%—large U.S. equity
- 14.51%—company stock
In terms of the way participants allocated their discretionary contributions (participant only-contributions), the allocation to equity funds was 60.0% in February, which represented a slight decrease of 0.4% from the previous month.
(1) According to Hewitt, 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 2 times the average daily net activity. A “moderate” relative transfer activity day is when the net daily movement is between 1.5 and 2 times the average daily net activity of the preceding 12 months.