401(k) Participant Flow Into Equities Hits a Wall in September

October 15, 2003 (PLANSPONSOR.com) - As the broader markets turned down last month, so too did the flow of 401(k) participant money into equity investments.

The slowdown of the participant migration into equities out of fixed-income reverses a trend that began in earnest in April,when US equity markets – and participants tracked by the Hewitt 401(K) Index – reversed a year-long shift to fixed income and stable value investments in the Hewitt Index, which tracks the movements of some 1.5 million participants. 

For September though, transfers favored fixed-income investments on 11 days, compared with equities for 10, as trading levels inched slightly upward.   On average, daily net transfers totaled just 0.07% of the roughly $70 billion in 401(k) balances tracked by Hewitt last month.   Even with the tilt toward fixed income, $160 million had still been transferred out of fixed-income funds.

Stock Stuffers

As usual, it was much more common on days when the market rose for money to move into stock funds than into fixed-income funds. Historically, 401(k) participants have elected to follow the market when transferring money – moving into stock funds on positive market days, and moving into fixed-income funds on negative market days.   Hewitt notes t ransferring money moved primarily into large and small US equity funds in September. Since the end of March, in all, over $1.4 billion has transferred into these two asset classes on a net basis.

Hardest hit by the outpouring of participant funds was company stock, which accounted for 44.98% of the fund outflow, and GIC/Stable Value that composed 28.73% of the exit participant dollars.   Other outwardly flows were noted among bonds, money markets and specialty sector investments.

Red ink bled across September’s returns sheets as the Russell 2000 fell 1.85% while the NASDAQ was off by 1.30%.  The Dow was 1.36% lower, and the S&P 500 gave back 1.06%.    The negative returns snapped a six month winning streak for both the Dow and the S&P 500, while the NASDAQ must now start over after gaining ground for seven months in a row. 

Allocated Across

The overall asset allocation in the Hewitt 401(k) Index was mostly the same than the month before (See   Participants Continue To Bail on Bonds).   GIC/Stable Value held the majority of participant assets (25.42%) followed by company stock (24.17%) and large US equity (21.02%).   Other major holdings included:

  • lifestyle/premix (6.06%)
  • balanced (6.02%)
  • bond (3.88%)
  • small US equity (2.35%).

Thus, as September drew to a close,the stock allocation of the Index remained flat at 62% of total balances, retaining its July 2002 level, after reaching a low of 56.6% in February of 2003 (See   Transfers Heat Up While Markets Melt Down in July).

New contributions painted a slightly different picture with GIC/stable value being the most prevalent investment option, comprising roughly a quarter (23.73%) of the total.  However, company stock was the third most prevalent holding, with 20.06%, while large US equities were 22.90% of the total, coming in as the second most widely held.  Other major segments were:

  • lifestyle/premixed (6.49%)
  • bond (5.41%)
  • money market (5.24%)
  • small US equity (4.63%)
  • balanced offerings (4.06%).

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