Whether it was pre-election jitters or some other force at work, but for the first time in the more than 20-year history of the Alight Solutions 401(k) Index, an entire month saw net trading flows move to fixed income.
401(k) investors made “consistent and steady trades” from equities to fixed income, the firm reports in its October 2020 Observations. On average, 0.028% of 401(k) balances were traded daily and all trading days in October favored fixed income funds. This appears to be a consistent pattern, as the current year-to-date data shows 162 days favoring fixed income, with 49 favoring equity, according to the Index, which tracks the 401(k)-trading activity of over 2 million people with more than $200 billion in collective assets.
There were also seven days of above-normal trading activity in October—the most since March, when fears of the Coronavirus pandemic and market volatility sparked a spike in trading. Interestingly, this follows a light trading month in September, when there were zero above-normal trading days. For the year to date, there have been 44 days of above-normal trading activity.
Alight notes that 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. A “high” relative transfer activity day is when the net daily movement exceeds two times the average daily net activity.
Inflows and Outflows
Total transfers as a percentage of starting balance was 0.54% for October and 3.39% for the year to date.
In a slight shift, stable value funds reaped the highest percentage of trading inflows for the month, at 49% for an index dollar value of $603 million, while 39% (or $472 million) went to bond funds and 11% (or $138 million) went to money market funds.
Movement from large U.S. equity funds continued to lead as the largest percentage of outflows for the month at 44%, for an index value of $534 million, followed by target date funds (18% at $215 million) and mid U.S. equity funds (11% at $139 million).
After reflecting market movements and trading activity, Alight found that average asset allocations in equities increased from 66.1% in September to 65.4% in October, while new contributions to equities remained at 67.2% from September through October.
Market Observations
Alight notes that indices were mixed through October with small U.S. equities (represented by the Russell 2000 Index) up 2.1%. The remaining indices fell with large U.S. equities (represented by the S&P 500 Index) dropping -2.7%, international equities (represented by the MSCI All Country World ex-U.S. Index) falling -2.2%, and U.S. bonds (represented by the Bloomberg Barclays U.S. Aggregate Index) down -0.5%.
