June Transfers Favor Equity Investments – But Not Company Stock

July 8, 2003 (PLANSPONSOR.com) - As US equity markets closed out a strong second quarter, participants continued a slow, but steady shift to equity investments, according to the Hewitt 401(k) Index.

In June, participants tracked by the Hewitt Index favored equity investments on a net basis on all but four trading days during the month, a trend already evidenced in May (see    Participant Transfers Still Muted in May ) and April (see  April Transfers Slow, But Equity-Oriented ), but in sharp contrast to the prior quarter, where participants favored fixed income investments (see  Transfers Head For Cover Amidst War News ).  

Quiet Pace

Trading volumes during the month continued their quiet pace, however, averaging just 0.07% of balances per day in the second quarter, compared with the trailing 12-month average daily net transfer activity of approximately 0.08%.    For the quarter, there has been only one above-average transfer activity day (June 3, when trading volumes were about 1.65 times normal), compared to more than a dozen in the same quarter a year ago.  

Even in the first quarter, there were just five above-average trading volume days registered by the 1.5 million participants tracked by the index.   A “normal” level of relative transfer activity is 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.

Most of the transferred balances came from GIC/Stable Value options, some 49.62% of the total, while nearly 25% came from bond options.   It was all coming from fixed income options, however - nearly 22% was pulled from company stock investments.   Large cap US equity funds were the primary beneficiaries, pulling in nearly 44% of the month's net transfers, while small cap US equities drew 24%.

In all, for the second quarter, close to a billion dollars, some 1.4% of balances, was transferred from fixed income funds such as GIC/stable value, bond, and money market into stock funds.

When the dust settled, GIC/Stable Value offerings still represented the largest holding in the $70 billion tracked by Hewitt, some 27%.   Company stock was the second largest holding, 25.7%, while large US equity was close behind with 21%.   Balanced funds represented 7.6%, bond funds were nearly 5%, and lifestyle/premixed offerings comprised nearly 4.2% of the total index.   The stock allocation of the Index stood at nearly 61% of total balances as of the end of June. Still, overall stock investment exposure remains well below its 2000 high of 74% of balances.

Stock Slip

Company stock, which had dominated new contribution investment in May, was just 15% of those monies in June.   GIC/Stable Value funds were the most popular target for new contributions last month, pulling nearly 27.5% of the total, followed by the more than 23% directed to large US equity fund options.   Lifestyle/premixed funds drew 7.5%, bond funds got 8.1% and balanced funds drew 4.33%.   Year to date, the average daily allocation to stock investments as a percent of total contributions stands at 63%, compared to a high of 77% in 2000, according to Hewitt.

For the month, the Dow gained 1.53%, the Russell 2000 was 1.64% higher, the NASDAQ ahead 1.69%, and the S&P 500 up 1.13%.   For the quarter, the Dow was 12.43% higher, while the S&P 500 rose 14.89%, the NASDAQ gained 21%, and the Russell 2000 up 22.96%.