Small Caps Draw Participant Interest in November

December 8, 2003 ( - While US equity markets continued their upward trend, participants appeared largely unmoved by the "prospects," according to the Hewitt 401(k) Index.

Trading remained within normal levels during the month, but generally tended lower (averaging 0.063% of participant balances, compared with 0.068% since the inception of the index). Net transfer activity favored equities on 14 of the 19 trading days during the month. A year ago, transfer volumes in November represented 0.09% of total balances, and there were 7 above normal trading days (see Participants Unmoved by Market Recovery ).

Indeed, Hewitt notes that since March, coinciding with the declaration of the end of the War with Iraq, there have been only three trading days when relative transfer activity reached “moderate” levels, and no “high” relative transfer activity days (see Transfers Head For Cover Amidst War News ). 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.

Small Cap Draw

The primary beneficiary of transfer volumes during the month were small equity funds, which drew more than 45% of the net transfers. Large equities were a distant second place, garnering about 18% of the total, while lifestyle/pre-mixed options pulled nearly 11%. Once again GIC/stable value offerings proved to be the biggest loser, with just about 35% of the outflows coming from those options. Bond funds contributed 24% of the outflows, while 21.5% came from money market options, and nearly 20% from company stock.

Large equity, GIC/stable value, and company stock continued to attract most new contributions – 23.94%, 21.04%, and 20.52%, respectively. Lifestyle/pre-mixed offerings received nearly 7.5% of the new investments, while small equity drew 6%, bond offerings received 5.29%, and balanced funds got 4.26%.

When all was said and done, company stock continued to dominate participant allocations, representing nearly 25% of the total holdings, extending the advantage the category enjoyed in October (see 401(k) Investors Cautiously Return to Equities in October ). GIC/stable value offerings weren't far behind, however, which expanded its share to 24%, compared with 23.25% a month ago. Large equities were in third place, with 21.51% of the total, followed by:

  • Lifestyle/pre-mix (6.12%)
  • Balanced (6.0%)
  • Small equity (4.16%)
  • Bond (3.46%)
  • International (3.1%)
  • Money market (2.83%)
  • Mid equity (2.51%)
  • Mutual fund windows (1.18%)
  • Emerging markets (.32%)
  • Specialty/sector (.16%)

Hewitt notes that those 401(k) participants who have made transfers this year have tended to move money from fixed-income to equity investments. For example, while in 2002, nearly $2 billion moved out of diversified equity funds (see More Trading, Less Stocks for Participants in 2002: Hewitt ), in 2003 thus far more than $2 billion has moved back into such funds.

Still, the percent of contributions directed to stock funds remains lower than average. Since the Hewitt 401(k) Index's inception, on average, 71% of daily contributions (employee and employer contributions) have been directed to stock fund investments - this year that has dropped to a daily average of 62%.