Hewitt: K Plan Participants Even in February

March 8, 2004 (PLANSPONSOR.com) - Breaking from the equity fixation in January, 401(k) participants favored fixed income investments over equity options in February.

Once the dust settled though, 401(k) participants ended February right where they left off January, with 66.5% of their portfolios in equity investments (See   Hewitt: K Plan Equity Love Affair Hot As Ever in January ).   However, unlike the previous month, where investors tweaked their portfolios to correspond with the dawning of a new year, participants were less prone to make changes to their 401(k) investment allocations in February 2004, according to data from the Hewitt 401(k) Index, which tracks the movement of some 1.5 million participants.

For February, transfers favored fixed income investments on 10 days, compared with equity for nine, as trading levels remained stagnant.  On average, daily net transfers totaled just under 0.05% of the roughly $70 billion in 401(k) balances tracked by Hewitt. 

February’s numbers were light but still feed into a normal level of relative transfer activity – normal defined when the net daily movement of participants’ balances as a percent of total 401(k) balances within the Hewitt 401(k) Index equals between 0.3 times and 1.5 times the average daily net activity of the preceding 12 months.   During the month, one day – February 17 – touched a level of moderate, with an average daily net activity reading of 1.74%.

Fund Inflow

If it is more common on days when the market rises for money to move into stock funds than into fixed-income funds, then February’s transfer activity is a bit of an anomaly.   Historically, 401(k) participants have elected to follow the market when transferring money – moving into stock funds on positive market days and into fixed-income funds on negative market days. Yet in February, the market had an equal number of up and down days – up nine, down nine and unchanged one – and participants elected more days to transfer funds to fixed income than equity investments.  

Hardest hit by the outpouring of participant funds was company stock, which accounted for 64.15% of the fund outflow, and Small US Equity that compose 18.07% of the exiting participant dollars. Other investment outflows were noted in:

  • GIC/Stable Value (-12.26%)
  • Bond (-5.53%).

However, one fund’s outflow is another one’s gain.  Most participant inflows in February were concentrated in International funds (25.36%), followed by Large US Equity (20.21%). This is of little surprise when measured against the benchmarks.  The MSCI EAFE was up 2.31% for the month, trailed by a 1.39% return notched in the S&P 500.

Also reporting gains were the Dow Jones Industrial Average (1.14%), the Lehman Aggregate (1.08%) and the Russell 2000 (0.90%).   The Nasdaq ended February lower by 1.76%.   Meanwhile, other funds picking up 401(k) plan participant transfer dollars were Self-Directed Window (15.00%), Lifestyle/Pre-mix funds (12.97%), Balanced funds (9.22%) and Emerging Markets (8.77%).

Participant Allocations

As February drew to a close, the majority of participant funds were held in Company Stock (284.70%), followed by Large US Equity (22.35%) and GIC/Stable Value (22.07%).  Other holdings included:

  • lifestyle/premix (6.32%)
  • balanced (6.27%)
  • small US equity (4.50%)
  • international (3.59%)
  • bond (3.20%)
  • mid US equity (2.62%)
  • money market (2.48%)
  • self directed window (1.31%)
  • emerging markets (0.44%)
  • specialty/sector (0.15%).

New contributions looked similar for the month, with company stock taking in 28.48% of the total.   This was followed by 18.82% going to balanced funds and 16.75% directed to Large US equity funds.   The rest of the contributions shook out as:

  • GIC/Stable Value (11.94%)
  • small US equity (4.11%)
  • bond (3.43%)
  • international (3.15%)
  • mid US equity (2.68%)
  • money market (2.57%)
  • self directed window (2.14%)
  • emerging markets (0.47%)
  • specialty/sector (0.14%).

More information and Hewitt’s data can be found at  http://was4.hewitt.com/hewitt/services/401k/observ/04_february.htm .