Participants’ Move to Fixed Income Slows

July 6, 2010 ( - 401(k) participants transferred monies from equities into fixed income investments for the second consecutive month in June, according to the results of the Hewitt 401(k) Index.

However, it was a much lesser move than in May when 80% of days saw fixed income-oriented transfers (see 401(k) Participants Retreat from Equities in May). In June, a total of $148 million moved from equities into fixed income, as 59% of the days saw positive flows into the asset class.   

For the quarter, $496 million moved out of equities and into fixed income investments, representing 0.43% of total assets. 

Nearly all equity asset classes experienced outflows during June, according to Hewitt data. International funds led the way with $54 million transferring out, followed by small U.S. equity ($29 million) and large U.S. equity ($29 million).   

In total for second quarter, as well as the entire first half of the year, international funds had the largest outflows ($388 million during the quarter and $548 million year-to-date). Company stock also experienced large outflows of $482 million during the first two quarters, as did emerging markets which lost $87 million.   

Transfer volume in June was in line with the 12-month trailing average — 0.035% of 401(k) balances were traded on a daily net basis. Three of the days in June had transfer activity above normal levels. In total, 16 days of the quarter had transfer activity higher than normal, which made it one of the most active quarters in the past few years. 

Bond Funds Win Participant Assets in June   

401(k) assets for June flowed primarily into bond funds, garnering 90% of net transfers, totaling $174 million. It is also the asset class that received the largest inflows for the quarter and year-to-date, gaining $407 million and $626 million, respectively.   

Small U.S. equity and lifestyle funds saw positive transfers as well, totaling $275 million and $238 million for the year (primarily coming in during the first four months).   

Mostly due to the stock market decline, as well as the strong fixed income-oriented transfers in June, participant's overall allocation to equity investments decreased significantly, down1% to 56.3% by the end of June. By comparison, the allocation was 58.1% at year-end 2009.   

In terms of 401(k) participant-only contributions, the equity allocation also decreased significantly, down nearly 1% to 60.2% in June, but still up 0.7% for the year.  

However, as usual, the big winners of participant contributions in June were lifestyle/pre-mixed funds (25.92%), stable value/GIC funds (18.72%), and large U.S. equity funds (17.08%).  

The Hewitt 401(k) Index is here.