Participants Pull Back from Stocks in May

June 12, 2002 ( - Large US equity investment choices took it on the chin in May, yielding to GIC/stable value offerings, while company stock remained a hot potato for participants.

Participant trading volumes were roughly normal in May, although there were 7 “above normal” trading days according to the Hewitt 401(k) index. Trading volumes were high on just two days during the month (May 8 and May 28) – roughly triple normal levels.

On May 8 the NASDAQ soared nearly 8%, but participants in the index moved toward fixed income on a net basis.  May 28 was the first trading day after the Memorial Day weekend, and may have been boosted by pent-up demand, as participants shifted to stocks on a net basis.

Getting “Fixed”

Overall net transfer movements favored fixed income roughly three-fourths of the time in May.  GIC/stable value investments were particularly strong during the period, pulling in a net total of $100 million in transfers according to Hewitt. More than 50% of the transfers flowed to the sector on nine of the 22 trading days in May.

Hardest hit were large US equity funds, with more than $200 million transferring out of such investments over the course of the month on a net basis. Hewitt noted that money flowed out of company stock on a net basis on 59% of the days in May. However, the category drew more than half of the daily net flows on seven days.

Stock Rocks

In fact, company stock transfer activity remained higher than average in May. Overall average daily net transfer activity into and out of company stock has averaged 0.07% of total balances, but during May average daily net transfer activity into and out of company stock rose to 0.11%. In 2002 average daily net company stock transfer activity has been an above average 0.09%.

Company stock drew nearly 1 in 5 contribution dollars in May, though not all those monies were under participant direction. Large US equity funds continued to lead new flows, drawing nearly 30% of the total, while GIC/stable value pulled in more than 17%.  Lifestyle offerings attracted nearly 7%, while balanced, small US equity and bond funds drew about 5% each. International offerings captured 4%, while just 0.14% went toward self-directed windows. 

Pie “Sliced”

Participant balance allocation to company stock continues to dominate the Hewitt index, comprising more than 28% of the total balances represented, comparable to last month’s percentage (see Employer Stock Hot Transfer Ticket in April ). Large US equities continue to come in second with 22.8%, but GIC/stable value is quickly closing the gap and now represents 21.59% of the total, no doubt aided by slumping equity values, in addition to the new fund flows.

As for other sectors, balanced funds comprise 7.8% of the total, lifestyle funds 4.03%, bond funds 3.68% and small US equities 2.99%.  Self-directed windows make up just 0.28% of the total.

A “normal” level of relative transfer activity is when the net daily movement of participants’ balances, as a percent of total 401(k) balances within the Hewitt 401(k) Index, equals between 0.3 times and 1.5 times the average daily net activity of the preceding 12 months. A “high” relative transfer activity day is when the net daily movement exceeds two times the average daily net activity.

The Hewitt index tracks the activity of some 1.5 million participants.