Participants Continue Large US Equity Dump

May 9, 2005 ( - Most participants remain disinclined to reallocate their retirement plan balances, but those who do seem to be chasing market trends.

According to the Hewitt 401(k) Index, large cap US equity funds suffered most during April, with nearly half (42%) of the net outflows coming from that category.   The flood from large US equity funds continues a trend that has been in evidence since January – and more than $400 million has transferred from that category since the beginning of the year, according to Hewitt (see  401(k) Participants Go to International. Then Stable Funds in March ).       

Trading volumes were normal on most days during April – with just two moderate level trading days, and one low volume day on April 6.   Interestingly enough, one of the moderate level trading days favored equities despite a sharp drop in major US stock indices on that day (April 13).   Overall trading volume remained quiet, with only 0.038% of 401(k) balances trading on a net basis on any given day – a figure that Hewitt notes is below trailing 12-month average daily net transfer activity levels of 0.040%, and lower than average daily net transfer activity levels in March and February (see  Hewitt: February K Plan Trading Went Out with a Bang ).   Transfer activity peaked at 0.077% of balances on the last business day of the month.

Stock “Flock”

Following large cap US equity funds, small US equity funds experienced the second largest net outflows – nearly 28% of the net outflows.   International funds, whose relatively strong performance has drawn participant interest this year, saw that trend reversed in April, and were nearly 9% of the month’s net outflows.   Such funds had experienced net monthly inflows since the end of the third quarter of last year. However, as international equity indices swooned in tandem with domestic stock markets last month, the tide turned, according to Hewitt.

The primary beneficiaries of the movement from stock funds were GIC/stable value offerings, which drew 42.6% of the net inflows, followed distantly by bond funds (20.29%), company stock (17.97%), and money market funds (16.96%).

Oddly, given the transfer trends, large US equity funds drew the largest proportion of contributions during the month – some 24.21%.   GIC/stable value were the second most popular draw, pulling nearly one-in-five April contribution dollars, while company stock received more than 15%.   That ordering remained consistent, even when considering participant-only contribution flows.

Because of market weakness and transfer activity, however, participants’ overall allocation to equity investments decreased slightly to 66.0% by the end of April, from 66.4% at the end of March. Historically, 401(k) participants’ equity exposure, according to the Index, has been as high as 74% (in 2000) and as low as 57% (in 2003).

The Hewitt 401(k) Index tracks the daily transfer activity of nearly 1.5 million 401(k) plan participants with nearly $90 billion in collective assets.