401(k) Participants Retreat from Equities in May

June 8, 2010 (PLANSPONSOR.com) - As the Dow Jones Industrial Average slid more than 7% in May, 401(k) participant transfers became strongly fixed income-oriented, according to the results of the Hewitt 401(k) Index.

A total of $635 million moved from equities into fixed income investments during the month, which represented 0.55% of total assets. Eighty percent of days during the month saw fixed income-oriented transfers.   

Participants reacted strongly to the downturns of the market, the data shows. On May 6, when the Dow Jones Industrial Average was down 3.2%, net transfers were strongly fixed income-oriented, in total four times the typical average, Hewitt said. Again, on May 20, volumes of transfers (fixed income-oriented) were three times the norm when markets were down 3.6%.  

The three fixed income asset classes received a total of $706 million of net transfers, which represented 86% of the inflows in May. GIC/stable value and bond funds received $424 million and $248 million, respectively. Company stock funds also experienced positive inflows of $113 million.   

On the other hand, all diversified equity asset classes saw net outflows. As the MSCI EAFE Index declined more than 11%, international funds had the biggest losses, with $247 million moving out of these funds. Large and small U.S. equities also experienced $195 million and $121 million in outflows, respectively, followed by lifestyle funds with $109 million.

Volumes of transfers were significantly higher than average, according to the Index. Overall, 0.06% of balances were shifted on a net daily basis, a level not seen since the first quarter of 2009. For the month, net transfers were 0.70% of total assets, considerably higher than the 0.46% average since the inception of the index.   

Nine days in May had an above-normal level* of transfer activity, with two-thirds of these days being fixed income-oriented.

Participants Still Contribute to Equities  

401(k) participants’ equity contributions were nearly unchanged at 61.1% at the end of May, according to the results of the Hewitt 401(k) Index.  

Lifestyle/premixed funds took in more than a quarter of employee-only contributions, while GIC/stable value funds pulled in 18%, and Large U.S. equities received 17%. Seven percent of employee-only contributions went into company stock funds.  

Overall contributions followed a similar pattern with 24.75% going into Lifestyle/premixed funds, 17% into GIC/stable value funds, and 16% into Large U.S. equities. Company stock funds received 11.96% of overall contributions.  

However, due to both market declines and participant transfers, the overall equity allocation of the 401(k) index was down significantly from 59.5% at the end of April to 57.3% at the end of May.  

The Hewitt 401(k) Index for May 2010 is here.