Participants Continue Trend Fleeing Stock in Favor of Fixed Income

July 21, 2005 ( - Continuing the trend for 2005, participants are fleeing equity funds in favor of fixed income investments.

According to the Hewitt 401(k) Index, participant transfer activity remained at normal levels in June.   Participants who made transfers chose to flee equity funds, with 47.8% of participant dollars moving out of large US equity and 15.94% moving out of Balanced funds.   In May, small US equity funds along with international stocks were the biggest losers with $200 million in net withdrawals (See  Despite Market Rebound, Participant Xfers Favor Stability )   Lifestyle funds had the largest net inflows (about 67%) with mid US equity funds coming in second at around 13%.

While the move to mid US equity funds in June shows a little less caution on the part of participants, activity on the two above average days showed they are still not trusting the market.   On those days most activity was toward fixed income investments, despite positive market returns, according to Hewitt.   This mimics the general trend for the year, with more than half a billion participant dollars flowing out of diversified equity funds and into GIC/stable value funds for the first six months of 2005.

Continuing Trend

As in May, net transfer activity for June was at .04% of participant 401(k) balances.     This is slightly higher than the June 2004 average of .03%, but noticeably lower than the average activity for 2003 and 2002 (.07% and .08%).   For the month, most of that transfer activity once again favored fixed income investments, with movements toward those funds 14 of 22 days.     

Participants’ overall allocation to equity investments remained at around 66% at the end of June.   Hewitt noted that month-end allocation levels for stock investments have been between 64% and 67% over the past 12 months.   Company stock still makes up the largest portion of stock investments (almost 23%).   Large US equity funds make up 22.09% of participant balances, while GIC/stable value funds make up 22.12%.   Balanced funds hold 7.44% of participant balances, followed by Lifestyle funds at 5.12%.   Small US equity, international, and bond funds make up 5.01%, 4.48%, and 3.6% respectively.

Considering participant-only dollars, the overall allocation to equity investments for June was 64.6%, which is down from the allocation in May of 66%.   Large US equity still hold the highest amount of participant only dollars, though with a little over 25%.   GIC/Stable value comes in second with 20.39%, followed by company stock with 10.89%.

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.