Xfers Continue To Have International Flavor

May 8, 2006 (PLANSPONSOR.com) - Participant transfers may, on a net basis, have favored fixed income more often than not in April - but international and emerging markets offerings continued to exert a strong pull.

According to the Hewitt 401(k) Index, more than $350 million shifted into those two fund types over the course of the month on a net basis (and represented an astonishing 48% of total net transfers).   Indeed, Hewitt notes that, for the year, over $1 billion has moved into international and emerging market equity funds on a net basis, and that nearly $250 million has shifted so far this year into emerging market equity funds alone.   During April, International offerings represented nearly 39% of net transfer inflows, while emerging market funds were more than 9% of the total.  

While the numbers alone are impressive, Hewitt notes that the volumes are especially significant given the fact that, while all plans in the Hewitt 401(k) Index offer an international stock fund, just a quarter of plans in the Hewitt 401(k) Index offer emerging market equity funds.   International and emerging market equities now represent nearly 8% of total 401(k) balances, or 11.5% of equity balances, included in the Hewitt 401(k) Index.

Fixed Actions

Despite those trends – and the strong surge of equity markets year-to-date – Hewitt notes that April transfer activity was primarily fixed-income-fund oriented on a majority (63%) of days during April, and that this is the highest percentage of fixed-income-oriented transfer activity days since June of 2005.   Ironically, the only high-volume trading day during the month – April 18, when participant transfer activity was more than twice normal volumes – and what turned out to be the stock market’s strongest day in April (the Dow was up more than 1.75%), the 401(k) transfer activity tracked by the Hewitt index favored fixed-income investments at more than twice the average rate on a net basis.   Net transfer activity was still slightly above average for the month — but still very low — at 0.04%. The trailing 12-month average for daily net transfer activity is 0.037%.

During April, GIC/stable value funds experienced net inflows of more than $150 million (21% of total net transfers), the highest level since October of 2005.   That turnaround also follows three straight months of net outflows from such funds (see  401(k) Participants Continue International Flight ).   Other categories benefiting from net transfers were small US equity (11.30%), money market (10.43% of the total), and brokerage windows (7.32%).   The big category loser for the month was company stock, which funded nearly two-thirds of the total monthly outflows.   Large US equity made up 23.50% of the total outflows, while bond funds contributed nearly 10% of the total net outflows in April.

Despite those trends in transfer activity, large US equity drew 21.37% of monthly contributions, followed by company stock (19.39%), and GIC/stable value (15.43%).   Lifestyle/pre-mixed portfolios garnered nearly 11% of monthly contributions.   Looking at participant contributions only, large US equity drew nearly 24% of the total, while GIC/stable value pulled in more than 17%, lifestyle/pre-mix got 12.49%, and company stock was nearly 10.50% of the total.

Despite overall net movement out of equities, market strength lifted participants’ equity allocation marginally to 68.7% of balances — the highest since mid-2001.