March Trading in Retirement Plans Favors Conservative Options

The quarter that ended in March was one of the most vigorous trading periods on record for 401(k) account holders, according to Aon Hewitt. 

According to the Aon Hewitt 401(k) Index, March saw 401(k) investors continue to be more conservative with their retirement investments, while the quarter coming to a close continued the recent dominance of target-date funds. 

In total, 0.25% of balances traded in March, up slightly from 0.21% in February, Aon Hewitt explains, and there was one day of above-normal trading activity. The asset classes with the most inflows were fixed-income funds, while funds with the most outflows were primarily equity funds. By month’s end, 17 out of 22 trading days showed more inflows to fixed income.

Asset classes with the most trading inflows during march included stable value funds, with $146 million in inflows, while bond funds saw $129 million inflows and money market funds netted $88 million. Asset classes with most trading outflows were large U.S. equity funds, down $146 million; company stock funds, down $127 million, small U.S. equity funds, down $37 million; and international funds, down $35 million.  

“After combining contributions, trades, and market activity in participants’ accounts, the percentage in equities rose to 64.8% at the end of March, slightly up from 64.0% at the end of February,” Aon Hewitt finds. “New contributions still favor stocks, but the contributions to equities remained flat at 66.0% at the end of March, a slight change from 65.9% at the end of February.”

Looking strictly at new contributions, target-date funds are still the clear ongoing winner, with $597 million in contributions during March, followed by large U.S. equity, with $316 million in contributions.

Taking all the trading activity together, Aon Hewitt finds a volatile start to the year. Volatility on Wall Street “created the busiest trading quarter in nearly three years for participants in defined contribution plans. As a percent of balances, 0.82% of balances traded in the first quarter of 2016—well ahead of Q4 2015’s figure of 0.36% and the highest level since Q3 2013.”

Trading activity overall in the quarter favored fixed-income instruments, “with GIC/stable value and bond funds receiving the majority of the inflows. Target-date funds and large U.S. equity funds had the largest percentage of outflows overall for the quarter.”