Transfers Favor Stable Value, But Contributions Cling to Lifestyle

401(k) participants moved assets out of equity into fixed-income investments again in July – a month that saw participant transfers favoring the latter on more than 90% of the trading days.

According to the results of the Hewitt 401(k) Index, more than $692 million was shifted out of equities into fixed-income asset classes in July – approximately $228 million moved out of large U.S. equity funds, and $208 million moved out of international funds (26% of the outflows). In addition, $144 million was transferred out of balanced funds during the month.

GIC/stable value funds were the largest recipients of the net transfers, as they have been throughout the first half of 2008 (see 401(k) Participants Follow Move from Equity Trend in June). In July, inflows ($659 million) to this asset class represented 83% of the net transfers. Bond funds also received 13% of the net inflows, representing $101 million. The remainder went to company stock (3.17%), and money market (1.32%).

Those transfers notwithstanding, overall volumes remained modest in July. Just 0.05% of account balances were transferred on a daily net basis, and was above “normal’ transfer levels on just three of the 20 trading days during the month. *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.

The combination of transfers and poor market conditions resulted in a decline in overall equity exposure. Only 61.7% of participants’ assets were allocated to equity investments by the end of July, returning to a level last seen in the middle of 2003, according to Hewitt. At month’s end, nearly a quarter of the assets tracked by the index were invested in GIC/Stable Value, 18.5% in large US equity, while just under 10% were invested in lifestyle/pre-mix offerings. Among the remaining asset classes, company stock represented 15.55%, international 8.44%, balanced 5.84%, and bond funds, 4.47%.

Contribution Trends

Lifestyle/pre-mix funds drew most of the new contributions – nearly one in every five dollars contributed, in fact. Large US equity attracted 17.42%, and GIC/stable value nearly as much (16.94%), while company stock (15.17%) was just behind. International offerings may have suffered notable transfers out, but still managed to attract just over 10% of July’s contributions.

Considering only participant contributions, 20.89% went to lifestyle/pre-mix funds, 19.27% to large US equity, and 18.66% to GIC/Stable Value. Of the remaining categories, participants invested 11.26% of their monthly contributions in international funds, 7.07% to company stock, 6.68% to small US equity, 5.46% to bond funds, and 3.65% to balanced offerings.