January Leaves Participants Un "Effected"

February 12, 2003 (PLANSPONSOR.com) - The so-called "January effect," the tendency for stock prices to increase in January more than other months, failed to move markets - or participants - in the first month of 2003, as participant transfers returned to normal.

Trading volumes were normal on 19 of the 21 trading days during the month, according to the Hewitt 401(K) Index.    On the whole, daily net transfer activity, which totaled just 0.08% of total account balances, was about average for the month, according to Hewitt.

Fixed Up

Transfers favored fixed-income alternatives on a net basis on two-thirds of the trading days, and roughly 94% of transferring money flowed into GIC/stable value, bond, and money market investments during the month.   That’s above average compared to the typical month in 2002, and significantly higher than January of 2002 (when only 43% of days saw fixed-income oriented transfer activity).

It was not surprising then to find that GIC/Stable value investments dominated the overall asset allocation for the roughly 1.5 million participants tracked by the Hewitt index, representing nearly 28% of the total.   Company stock continued to hold a dominant share, however, making up more than 24% of the total, though that is down from the 28% it constituted a year ago.  

Large Living

Large US equity made up nearly 18% (it was 24% a year ago), while roughly 9% was in a balanced option, roughly 5.5% in bond funds, and 4.5% was invested in lifestyle/pre-mix choices.   Money markets held 3.5%, while international, small US equity, and mid-cap US equity each represented about 2% each.

However, when it came to new investments, large US equity ruled the roost, pulling 22.27% of the total new money, though that was barely more than the 21.98% contributed to GIC/Stable value investments.   Company stock drew 18.79% of the new money, while bond, balanced, and lifestyle/pre-mixed split about 7% each.   International, small US equity, and mid-cap US equity each drew about 3-4% of new contribution dollars.  

Stock “Slump”

Overall, contributions to equity investments represented about 61% of the total for the month, down from a monthly average of 73% in 2002 (see  More Trading, Less Stocks For Participants in 2002: Hewitt ).

Hewitt noted that the combination of poor market conditions, fixed-income oriented transfer activity, and decreased contribution to stock investments resulted in a decline in overall stock exposure by the end of January to about 58%. A year ago that stood at 68%.   On the other hand, GIC/stable value balances have increased from 20% a year ago to 28% as of January 31, 2003.