No Strong Participant Reaction to Market Swings

Only about 0.021% of 401(k) balances transferred in September, marking the 11th consecutive month that trading activity was below 0.03%. Total transfer activity was $297 million, with two days having above normal trading activity, according to Aon Hewitt.

Plan participants favored equity funds over fixed-income funds for 55% of the trading days in September, a reversal from August, when participants favored fixed-income investments on 65% of the month’s trading days. Overall, transfer activity moved away from diversified equities (equity assets excluding company stock) by $101 million (0.06%). For the quarter ending September 30, 51% of trading days favored equity funds, Aon Hewitt says.

Lifestyle and premixed funds saw the most inflows with $129 million (44%), while large U.S. equity funds received $59 million (20%) and international funds took in $36 million (12%). Company stock funds led net outflow activity with -$212 million (71%), followed by small U.S. equity and mid-cap U.S. equity with -$45 million (15%) and -$34 million (11%), respectively, transferring out for the month.

After incorporating trading and market activity, participants’ overall allocation to equities decreased marginally to 65.5% from 65.9% last month, the index shows. Future contributions to equities increased marginally to 67.0% from 66.5%.

The domestic equity markets struggled in September, as the S&P 500 Index returned -1.4% during the period. Small cap U.S. stocks, as measured by the Russell 2000 Index, lagged their large cap counterparts, returning -6.1%. Non-U.S. equities, as measured by the MSCI All Country World ex-U.S. Index, decreased by -4.8%. After posting seven consecutive months of positive performance, the MSCI Emerging Markets Index was the worst performing index in September, posting a return of -7.4%. The Barclays U.S. Aggregate Index, a measure of the fixed-income market, also posted negative performance during the month with a return of -0.7% as the 10-Year Treasury yield interest rates increased.

While volatility increased in the equities markets in the third quarter, very little money was transferred, with an average net activity of 0.20% of balances and just three days above normal trading levels. On the equity front, September reversed almost all of the gains of July and August, with the S&P 500 posting a slightly positive return of 1.1%. 

U.S. small cap stocks underperformed their large cap counterparts during the period, as the Russell 2000 Index lost -7.4%. Non-U.S. stocks lost ground in the quarter as the MSCI All Country World ex-U.S. Index and the MSCI Emerging Markets Index decreased by -5.3% and -3.5%, respectively. U.S. bonds, as measured by the Barclays U.S. Aggregate Index, were able to eke out a small gain during the quarter, Aon Hewitt says, returning 0.2%.

Aon Hewitt’s September 401(k) Index observations are available on its website.