While many were still taking a break for their summer vacations, a volatile August on Wall Street spurred higher than normal 401(k) participant trading activity.
According to the Alight Solutions 401(k) Index’s August 2019 observations, net trading activity for the month was the highest so far this year at 0.24% of balances, bringing the 2019 year-to-date total transfers as a percentage of starting balance to 1.54%. Alight tracks the 401(k) trading activity of more than 2 million people with more than $200 billion in collective assets, and issues monthly and quarterly reports detailing 401(k) trading volume, asset flows and market activity.
Additionally, Alight reports that there were six above-normal days in August—the highest monthly total since December 2018. This brings the 2019 year-to-date above-normal trading days to 23. 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.
Inflows and Outflows
August was also the 19th month in a row that net trades have flowed from equities to fixed income, with 16 of 22 days favoring fixed income funds. Overall for 2019, 142 trading days (or 85%) have favored fixed income, while only 26 days (or 15%) have favored equity.
Trading inflows during the month went mainly to bond, stable value and money market funds, while outflows were primarily from large U.S. equity, target date and mid U.S. equity funds. Overall, bond funds received 50% of inflows for an Index value of $263 million. Stable value funds received 29% of inflows (or $150 million), while money market funds received 18% (or $94 million).
Large U.S. equity funds top the charts with the most trading outflows in August, coming in at 55% for an Index value of $291 million. Trailing behind were target date funds at 17% of outflows (or $92 million) and mid U.S. equity funds at 10% (or $55 million).
After reflecting market movements and trading activity, average asset allocation in equities decreased from 67.7% in July to 67.5% in August, according to Alight’s data, while new contributions to equities decreased slightly from 67.7% in July to 67.6% in August.
Not surprisingly, target date funds picked up the lion’s share of contributions in August, garnering 48% of contributions for a value of $559 million. Trailing behind were large U.S. equity funds at 20% (or $230 million) and international equity funds at 7% (or $84 million).
August Markets
As for how the markets faired, equities fell during the month of August, with small U.S. equities (represented by the Russell 2000 Index) losing 4.9%, large U.S. equities (represented by the S&P 500 Index) falling 1.6%, and international equities (represented by the MSCI All Country World ex-U.S. Index) dropping 3.1%. Alight notes that fixed income investors fared better, with U.S. bonds (represented by the Bloomberg Barclays U.S. Aggregate Index) gaining 2.6%.
Despite equities falling during August, the 2019 year-to-date data still shows the S&P 500 Index up 18.3% and the Russell 2000 Index up 11.9%.
