April Transfers Slow, But Equity-Oriented

May 12, 2003 (PLANSPONSOR.com) - Participant transfer activity was normal during April, but resurgent stock markets sent investors scrambling to equity investments on a net basis.

That’s the evidence from the Hewitt 401(k) Index, that found transferring 401(k) balances shifting toward stock investment funds on two-thirds of the trading days during the month, the most equity-oriented days since 2000 as major US stock indices enjoyed a resurgence – the Dow gaining 6.11%, the S&P 500 was 8.1% higher, and the NASDAQ gained 9.18%.

On average, the 1.5 million participants tracked by the index transferred a more modest than normal 0.06% of balances per day, compared with the trailing 12-month average transfer activity of approximately 0.08%.   Hewitt notes that even on days such as April 2nd, when the market rose more than 2.5% (and the NASDAQ rose an even stronger 3.6%) on news of US troops moving into Iraq’s “Red Zone,” transfer activity was just 0.087% of total balances.   There were no above normal trading days in April, and in fact there have only been five during the first third of the year (see  Transfers Head For Cover Amidst War News ).  

One casualty of the move was that for the first time since the beginning of 2002, GIC/stable value saw net transfers out, while all diversified equity asset classes saw net transfers in. Not surprisingly, large US equity was the largest beneficiary of the trend, pulling in more than $150 million during the course of the month.   

Stable, Valued

Still, GIC/stable value investments remain the largest asset class in the Hewitt 401(k) Index, representing some 28.23% of total balances at April’s end.   However, large US equity balances increased their share of the $70 billion pie tracked by Hewitt, comprising 20.86% in April, from 19.7% at the end of March.   Nearly 23% of the participant balances tracked by the index were invested in company stock, with balanced (7.32%), bond (5.34%) and lifestyle/pre-mixed offerings (4.73%) representing smaller investments.

During the month 59% of contributions went to stock investments, compared with 68% a year ago.   An even more striking comparison lies with April 2001, when 81% of new monies went to equities.   At the end of April, overall stock investment exposure was 57.9%, compared with 56.9% at the end of March.

Company stock attracted just 16% of new contributions during the month, compared with nearly 23% in March (see  Transfers Head For Cover Amidst War News ).   Lifestyle funds pulled 10.27%, while nearly 9% went toward bond offerings, and roughly 4% of new contributions were invested in balanced funds.