Participant Trading Perked Up in August

August brought a notable uptick in 401(k) trading activity among defined contribution plan investors, according to the Alight Solutions 401(k) Index.

There were three days of above normal trading activity in August, matching the total number of above normal days from January through July. Ironically, that surge in activity came after a month that was the lightest trading month for defined contribution plan investors in over five years, according to the Alight Solutions 401(k) Index (previously Aon Hewitt 401(k) Index). In fact, just 0.11% of balances were traded in July — the lowest level since April 2012, and the second lowest month since 1997, when the Index was started.

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 Alight Solutions 401(k) Index™ equals between 0.3 times and 1.5 times the average daily net activity of the preceding 12 months.

Rob Austin, Director of Research at Alight Solutions, notes that, “Over the last five years, the Index has averaged 32 above normal trading days per year. The fact that there have only been six such days this year speaks to how infrequently participants have been initiating trades. There are likely two main forces at play: inertia on the part of investors and a prolonged upward-trending market.”

On average, 0.016% of balances traded each day, and most days 18 out of 23 days favored fixed income funds. Of those transfers, 31% of inflows went to stable value funds (some $143 million), 21% to money market funds, and 17% to bond funds.

Those transfers came from:

36% – large U.S. equity funds
22% – company stock funds
17% – small U.S. equity funds
16% – mid U.S. equity funds

New contributions continued to favor target-date funds (doubtless as a result of auto-enrollment and qualified default investment alternatives (QDIAs), with nearly half (45%, $454 million) directed to target-date funds. Large U.S. equity funds garnered 19%, and international funds drew another 8%.

In August, capital markets saw mostly modest gains for U.S. bonds (as measured by the Bloomberg Barclays U.S. Aggregate Index), international equities (as represented by the MSCI All Country World ex-US Index), and large U.S. equity funds (the S&P 500 Index). On the other hand, small U.S. equity funds (represented by the Russell 2000 Index) lost ground during the month.

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