Q2 a Difficult Quarter for Callan DC Index

September 8, 2010 (PLANSPONSOR.com) – Callan Associates reports that the Callan DC Index’s second-quarter performance was its worst since the fourth quarter of 2008.

The average defined contribution (DC) plan registered an investment loss of 7.19%.  

Turnover for the second quarter was below average, but when DC money did move, it flowed out of equities and into fixed income instruments, according to Callan. For the quarter, the Index’s equity share shrunk from 64.5% to 61.3%, reflecting market losses and some transfer activity. This reversed a four-quarter trend in which the equity share of the Index steadily rose.  

Domestic large cap equity, international equity and domestic/global balanced all witnessed sizable outflows while fixed income vehicles such as stable value and domestic fixed income saw substantial inflows. Target date funds continued their consistent gathering of significant participant inflows.  

Target date funds account for more than 10% of total DC Index assets and make up 18% of assets in plans where they are offered. Real return/TIPS funds continue to be added to fund lineups; they are now offered in over 16% of plans, up from only 4% in 2006. While the share of domestic large cap funds within the Index has fallen from 31.9% in 2006 to 22.8%, the portion of international equity remains unchanged at 7.3%. 

The total annualized growth of DC assets (contributions as well as total return) since the Index’s inception in 2006 stands at 2.4%. A paltry 0.11% of the total dollar growth can be attributed to market returns, Callan said, while the lion’s share (2.3%) is due to participant contributions.  

Since its 2006 inception, however, the Callan DC Index has outperformed the average 2030 target date fund by about 1% annually. This reflects the higher equity stake of the average 2030 fund: 80% versus 64% for the DC Index. Continuing a trend seen throughout its life, the DC Index underperformed the average corporate DB plan by over 2% for the quarter and nearly 2% since inception. 

The Callan DC Index is an equally weighted index tracking the cash flows and performance of more than 70 plans, representing greater than 800,000 defined contribution participants and nearly $75 billion in assets.