Smaller Stocks, Lifestyle Funds Draw Participants in July

August 8, 2005 ( - Participant trading remained within normal levels throughout July, but registered two moderate-trading-volume days, and one high-volume day.

Not surprisingly, in a month that saw significant upward movements in the equity markets, net flows favored equity funds on nearly two-thirds of the trading days, a marked turnaround from the previous month (see  Participants Continue Trend Fleeing Stock in Favor of Fixed Income ).   Ironically, on the one high-volume trading day during the month (July 8), net movement favored fixed-income investments.   Major US stock indexes closed higher on that day, and the Dow enjoyed its best close since January 3 at the end of a shortened holiday trading week.

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.

Small Caps Tapped

Small-cap US equity funds drew nearly 40% of fund transfers during July, followed by mid-cap US equities (22.66%) and lifestyle/pre-mix, with roughly 15% of the total flows.   Most of those inflows came at the expense of company stock, which comprised more than 38% of the outflows, followed by GIC/stable value (18.92%), international funds (14.95%), and bond funds (14.60%).   Overall, more than $200 million transferred into diversified equity funds in July, according to Hewitt – a sharp contrast to the nearly $600 million that fled the category in the first six months of the year.

Still, at the end of the month, company stock continued to lead all asset allocation categories, making up nearly 23% of the total portfolio represented by the Hewitt 401(k) Index, with large US equity (21.96%), and GIC/stable value offerings (21.74%) right behind.   In July, roughly 23% of new contributions were directed to large US equity investments, while GIC/stable value drew 18.15%, company stock pulled 18%, and lifestyle pre-mixed received more than 9% of the new monies.  

Those three categories also dominated participant-only contributions (drawing 25%, 20%, and 11%, respectively), while the fourth, lifestyle/pre-mixed, pulled in 10%.