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401(k) Participant Trading Activity Perked up in May

Industry Trends and Research

Participant trading activity among 401(k) investors edged up last month, with May seeing the highest monthly net trades so far this year.  

Amid a declining month on Wall Street, the Alight Solutions 401(k) Index shows that net trades in May amounted to 0.21% of balances. Additionally, there were three days of above-normal activity, which seems to be about average for the year, as there have been 14 above-normal days so far in 2019. 

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.

And as has been the case for the last several months, trading activity was almost exclusively from equities to fixed income. On average, 0.016% of 401(k) balances were traded daily, and 17 of 22 days favored fixed income funds. 

Trading inflows for the month of May mainly went to bond, stable value and money market funds. Bond funds collected 57% of inflows with an index value of $255 million, while stable value funds received 21% ($94 million) and money market funds received 15% ($67 million). 

Outflows were primarily from large U.S. equity, target date and mid U.S. equity funds. Large U.S. equity funds saw the highest percentage at 63%, totaling $283 million. Target date and mid U.S. equity funds saw outflows of 14% and 9%, respectively.  

After reflecting market movements and trading activity, May investment portfolios show that average asset allocation in equities decreased from 68.2% in April to 67% in May. New contributions in equities remained at 67.9% from April through May.

Not surprisingly, asset classes with the most contributions in May went to target date funds at 47% (or $594 million), while large U.S. equity funds received 20% (or $254 million). International funds trailed at 7% (or $90 million). 

Alight further notes that U.S. bonds (represented by the Bloomberg Barclays U.S. Aggregate Index) gained 1.8% during May, while equity markets fell. Small U.S. equities (represented by the Russell 2000 Index) declined -7.8%, large U.S. equities (represented by S&P 500 Index) dropped -6.4% and international equities (represented by the MSCI ACWI ex-US Index) were down -5.4%.