DC Participants Embrace Equities in January

February 19, 2013 (PLANSPONSOR.com) Defined contribution (DC) plan participants’ daily transfer volume in January was far above recent trends, according to Aon Hewitt 401(k) Index.

Transfers averaged 0.040% of total balances daily—significantly higher than the trailing 12-month average of 0.025%. January’s count of nine days with transfer activity above normal is the most the index has seen since October 2008, when there were ten days with above-normal transfer activity.  

In January, total net transfer activity was high, totaling $930 million, or 0.69% of total participant balances. This is more than double December’s total of $426 million. This movement shows participants took more action in January than they have in the past 17 months, since July 2011, when net transfer activity totaled $1.07 billion (0.81% of participant balances).  

The Aon Hewitt 401(k) Index reported optimistic trading movement among defined contribution plan participants in January. Net daily transfers favored equity funds for 90% of trading days in January, which is a reversal of the past 10 months favoring fixed income funds. Transfers into diversified equity (equity excluding company stock) asset classes totaled $811 million of total flows, or 0.60% of total assets.

Most fixed-income-based asset classes had net outflows in January. Leading the way, GIC/stable value funds lost $365 million (39%). In addition, bond funds lost $301 million (32%), followed by money market funds losing $81 million (9%). The only asset class of equities with a net loss was company stock funds, with $184 million (20%) of outflows.  

For net inflows in January, all diversified equity-based asset classes had gains. Premixed funds gained the most with $260 million (28%) transferring in. Large U.S. equities received $229 million (25%), and international funds took in $163 million (18%) of monthly inflows. Also, small U.S. equity gained $127 million (14%).  

Employee discretionary contributions, another measure of participant sentiments, increased to 62.2% in equities for January, up from the December average at 61.7%. Participants’ overall equity allocation increased 1.6% to reach 61.0% by the end of January, up from 59.4% at the end of December. 

The Aon Hewitt 401(k) Index is here.