A volatile start to the year on Wall Street created the busiest trading quarter in nearly three years for participants in defined contribution plans.
As a percent of balances, 0.82% of balances traded in the first quarter of 2016 – well ahead of Q4 2015’s figure of 0.36% and the highest level since Q3 2013, according to the Aon Hewitt 401(k) Index, which tracks the activities of some 1.3 million participants.
During the quarter, trading activity took a conservative bent, with GIC/stable value funds attracting nearly half (43%) of the inflows, followed by bond funds (37%), and money market funds (17%). Target date funds led the outflow asset classes, with 28% of the outflows during the quarter, just ahead of the 27% that came from large U.S. equity funds. Company stock was responsible for 18% of the outflows, approximately $224 million.
‘Out’ Like a Lion?
As for the last month of the quarter, March saw 401(k) investors continue to be more conservative with their retirement investments. In total, 0.25% of balances traded in March – up slightly from 0.21% in February, with just one day of “above normal” trading activity. (According to the Aon Hewitt 401(k) Index, 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 index, equals between 0.3 times and 1.5 times the average daily net activity of the preceding 12 months.)
The asset classes with the most inflows in March were fixed income funds; the funds with the most outflows were primarily equity funds. Seventeen out of 22 trading days showed more inflows to fixed income.
Large U.S. equity funds (37%) and company stock funds (32%) dominated the asset class outflows. Ironically, the large U.S. equity fund category was second only to target date funds (20% versus 37%) in leading the contribution inflow asset classes.
According to the Aon Hewitt 401(k) Index, just 1.52% of balances were transferred in 2015 – well below the historical average of 2.88%. There were 39 days of “above-normal” daily transfer activity in 2015, although that was in line with the average number of above-normal days over the past 5 years (35) and the past 10 years (35).
