Investing December 18, 2002

New SDBA Money Seeks Shelter in Q3

December 18, 2002 (PLANSPONSOR.com) - While participants in self-directed accounts left equity investments alone during the third quarter, 95% of net new assets were directed to the relative safe harbors of taxable bonds, asset allocation funds, fixed income securities and money market funds.

Reported by

Eric Hazard

According to the Schwab Self-Directed Brokerage Account (SDBA) Indicators, trading levels fell to an average of just 2.1 trades during the quarter from 2.2 in the second quarter , representing approximately one mutual fund trade and one stock fund trade in self-directed brokerage accounts (SDBAs), retirement plan brokerage accounts that offer plan participants access to investments (stocks, mutual funds, fixed income securities) outside of their core holdings.

The average account positions in the SDBA accounts tracked by Schwab with more than $5,000 invested remained unchanged from the previous quarter, holding 6.5 securities; 3.1 stocks, 2.1 mutual funds, 1.1 cash/equivalent and 0.2 fixed income securities. The average Personal Choice Retirement Account (PCRA) account balance was $49,344, compared with $52,731 a quarter earlier.

Investor “Bond”ing

Over half (57.93%) of the net asset flows tracked by Schwab went toward bond mutual funds, more than double the amount the prior quarter. The PIMCO Total Return bond fund again continued to top the list of Top 10 mutual fund holdings, representing 4.20% of the total mutual fund assets. Bond funds increased their hold on the top five mutual fund holdings, now comprising 4 out of the top 5; up from three of the top five in the second quarter.

The stock market slump continued to weigh on SDBA investors, as it did with the overall market. Evidence of this is asset allocation funds, fixed income securities, money market funds and bond funds, accounting for 95% of the net inflows among SDBA participants. In contrast, during the second quarter, small cap and tech stocks accounted for nearly 25% of net new assets.

Schwab noted for the first time since the SDBA Indicators were introduced in the fourth quarter of 2001, that there was an outflow of assets from large cap (-14.18%) and small cap (-15.10%) equity funds. This shift is especially prominent with small caps, which has seen asset flow decline from 26.34% of net new assets in the fourth quarter of 2001, to the 15.10% outflow this quarter.

“REIT”ing The Rewards

For the second consecutive quarter, SDBA participants shifted a significant percentage of assets into Real Estate Investment Trusts (REITs) indicating a continued trend that supports the growing popularity of these products.

This quarter saw REITs garner a 227% increase in net asset flows from the second quarter. According to Schwab investors appear to be attracted to REITs due to their high dividend income and low correlation with broader markets.

Popularity Poll

Among equity holdings, Viacom wrestled the top spot as the most popular equity holding tracked by the SDBA Indicators from Microsoft, representing 4.20% of the total. Microsoft was second with nearly 3.87%, while General Electric holdings comprised nearly 2.66%.

Among bond investments, after the PIMCO Total Return holding, PIMCO Real Return Bond (2.40% of the total assets), PIMCO Low Duration (2.00%) and Fidelity Magellan (1.94%) were next most popular.

New to the top 10 list was thePrudent Bear Fund, a “hybrid” fund specifically designed for investors seeking to capitalize on long periods of poor stock market performance during secular bear markets, which represented the 10th most popular fund with 0.71% of the total assets.

Schwab notes that among its 11,000 SchwabPlan PCRA participants 62% of their assets are in the SDBA option, with the remaining 38% invested in the core options of the program.