Investing December 15, 2003

Resurgent Markets Buoy SDBA Activity

December 15, 2003 (PLANSPONSOR.com) - Resurgent markets appear to be fostering confidence among self-directed brokerage account (SDBA) holders, who recorded the highest level of trading activity in nearly three years, according to new data.
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The trading surge (2.82 trades per account in the quarter) built on rising volumes in the prior quarter (see  Schwab: PCRA Participants Self-Direct Assets Into Mutual Funds, Equities ), when each account averaged 2.57 trades.   The third quarter volume was the highest since the first quarter of 2001, according to Charles Schwab Corporate Services’ most recent SDBA Indicators report.   Of those trades, roughly half (1.54) were equity trades, while 1.26 were mutual fund investments.   When the dust settled, the average positions per account totaled 6.53, made up as follows:

  • 3.17 equities
  • 2.13 mutual funds
  • 1.10 cash and equivalents
  • 0.13 fixed income

Sector “Slice”

During the third quarter SDBA users continued to favor equity sectors, comprising 29% of total SDBA assets tracked by Schwab, compared with 26% in the second quarter (and 23% a year ago).   Health care and information technology equity sectors combined to capture 13.5% of net new assets in the third quarter, according to Schwab.   The top three equity holdings for SBDA participants were Microsoft, Cisco Systems, and Intel.   Fourth most common were NASDAQ 100 shares, however.

Mutual fund trading scandals haven’t done much to dent the holdings of the Janus Fund, which was number two on the list of top 10 mutual fund holdings tracked by the SDBA indicators (Fidelity Magellan continues to top the list).   Vanguard 500 Index was number three, while the Dodge & Cox Stock Fund was fourth.   Mutual fund holdings were 41% of the asset value allocation of all PCRA accounts

Fixed income and cash/equivalents holdings slipped to a combined 30% in the third quarter, down 5% from the second quarter, according to the report.

Other Data

Schwab notes that:

  • Mutual funds captured 50% of net asset flows in the third quarter, with international funds and small cap stock funds leading all other categories (18.4% and 17.6% of total net new assets respectively).
  • Equity investments drew a third of net asset flows during the quarter

On average, SDBA participants kept 85% of their total 401(k) plan assets in the SDBA accounts, according to Schwab.

The SDBA Indicators report profiles the investment behavior of approximately 65,000 401(k) plan participants investing through Schwab’s self-directed brokerage account, the Schwab Personal Choice Retirement Account (PCRA).

The report includes data collected from participants in defined contribution plans who currently have account balances between $5,000 and $2 million in a Schwab PCRA account. The current quarter’s report is online at  http://www.schwab.com/SchwabNOW/SNLib090/2003_Q3.PDF .

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