401(k) Participants Turned Back to Fixed Income in August

September 10, 2014 (PLANSPONSOR.com) - When 401(k) plan participants traded their investments in August, they favored fixed-income funds over equity funds for 65% of the trading days, according to Aon Hewitt.

This was a reversal from July when more trading days favored equity funds, but consistent with the rest of 2014. Aon Hewitt’s 401(k) Index showed transfer activity moved away from diversified equities (equity assets excluding company stock) by $78 million (.05%) in August. 

Stable value/GIC funds received the most inflows, with $61 million (28%), while bond funds took in $40 million (19%) and money market funds received $32 million (15%). The options with the most outflows were small U.S. equity funds with $93 million (44%), company stock funds with $64 million (30%), and mid U.S. equity funds with $40 million (19%) for the month. 

August trading activity continued to be light in 401(k) plans, with only .020% of balances transferring. This marks the tenth consecutive month that trading activity was below .03%. Total transfer activity was $214 million or .13% of total assets, with zero days in August having above-normal trading activity.

Aon Hewitt notes that the global equity markets rebounded from a poor showing in July as the S&P 500 returned 4% and the MSCI All Country World ex-U.S. Index returned .6% during the month of August. U.S. small-cap stocks, as measured by the Russell 2000, outperformed their large-cap counterparts, posting a return of 5%. The emerging equity market posted its seventh consecutive month of positive performance, as the MSCI Emerging Markets Index gained 2.3%. The Barclays U.S. Aggregate Index, a measure of the U.S. fixed-income market, also posted positive performance during the month with a return of 1.1%, as the yield on the 10-year Treasury decreased, from 2.58% to 2.35%. 

After incorporating trading and market activity, participants’ overall allocation to equities was up slightly at 66% in August from 65.5% in July. Future contributions to equities decreased marginally, to 66.4% from 66.5%. 

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