Despite the market’s first quarter rebound, see-sawing stock prices prompted 401(k) investors to continue favoring fixed income funds over equities, according to the Alight Solutions 401(k) Index.
The firm’s March 2019 observations show that nearly 90% of the days in the quarter saw net trading activity favor fixed income investments, with three days of above-normal trading activity for the month. This brings the above-normal trading days for the year to nine, equally divided for each month of the quarter.
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 Alight’s Index equals between 0.3 times and 1.5 times the average daily net activity of the preceding 12 months.
What’s more, the shift to fixed income appears to be fairly steady, as 54 out of 61 trading days in the first quarter had net trading dollars moving from equities to fixed income, the report notes.
Overall trading activity still appears to be relatively low, however, as net transfers as a percentage of starting balance were only 0.18% for March and 0.50% for the quarter. In addition, a mere 0.014% of 401(k) balances on average were traded daily in March.
Inflows and Outflows
As to inflows and outflows for March, trading inflows mainly went to bond, stable value and money market funds, while outflows were primarily from large U.S. equity funds, company stock and small U.S. equity funds.
Of the asset classes, bond funds again saw the highest percentage of inflows for March, with 61% of the total ($226 million), while stable value funds received 26% ($96 million) and money market funds received 6% ($24 million).
Large U.S. equity funds saw the largest outflows for the month, with 37% of the total ($137 million). Company stock (22% at $82 million) and small U.S. equity funds (15% at $54 million) rounded out the next highest asset classes with the most trading outflows.
And despite this apparent movement to fixed income, average asset allocation in equities remained unchanged at 67.9% in March, after reflecting market movements and trading activity, the report shows. Moreover, new contributions in equities increased to 68.3% at the end of March, from 67.7% at the end of February.
Asset classes with the most contributions in March included target date funds (42% at $835 million) and large U.S. equity funds (21% at $416 million), followed by international funds (8% at $159 million).
Alight’s report further shows that capital markets delivered mixed performance during the month of March. The U.S. bond market (represented by the Bloomberg Barclays U.S. Aggregate Index) gained 1.9%. Large U.S. equities (represented by the S&P 500 Index) rose 1.9% and international equities (represented by the MSCIACWI ex-US Index) gained 0.6%. Small U.S. equities (represented by the Russell 2000 Index) fell 2.1%.
