Data & Research March 17, 2010

Schwab Sees More Rolling Into IRAs

Data from Charles Schwab shows that more people are rolling 401(k) savings into an individual retirement account (IRA) when leaving a job.
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According to Schwab data, 69% of assets held by some 12,200 401(k) participants who left their job in the fourth quarter of 2008 had been distributed from former employers’ plans one year later by the end of 2009. Moreover, an overwhelming majority of those assets was rolled over into IRAs.     

Of the distributed assets in the Schwab data:

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  • 80% were rolled over into IRAs;
  • 10% were taken in cash distributions; 
  • 8% were moved into new employer plans; 
  • 2% were taken in other forms of distributions. 

A prior analysis conducted by Schwab from the beginning of 2008 to the beginning of 2009 found that 57% of 401(k) assets held by workers who left their job had been distributed one year later, with three-quarters (75%) of those distributed assets were rolled over into IRAs.

“We are definitely seeing an uptick in the number of 401(k) plan participants who choose to roll over plan assets instead of cashing out or leaving savings with a previous employer,” said Catherine Golladay, vice president of 401(k) advice and education at Charles Schwab, in a Schwab release. “Consumers have been made more aware of the importance of saving for retirement, and when it comes time to change jobs, more people are thinking through their options for how to make the most of the money they have already saved.”

The Markets March 16, 2010

Fund Managers Shifting Focus Away from Europe

Investors have recovered their bullishness towards equity markets, but are shifting their focus away from Europe and into the U.S. and Japan, according to the BofA Merrill Lynch Survey of Fund Managers for March.
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According to a release of survey results, investors have restored their faith in equities, with a net 46% of respondents saying they are overweight the asset class, up from 33% the previous month. Cash positions have fallen with respondents at a net neutral cash allocation, compared with a net 12% underweight in February.       
A net 21% of managers are underweight European equities this month, a sharp change from a net 2% overweight in January (see “Fund Managers Question Global Economic Recovery“). The change in favor of U.S. equities has been similar, as a net 19% of respondents are overweight U.S. equities this month, up from just 1% in January.      

Japan is also regaining popularity, as a net 6% are overweight Japanese equities, the most bullish reading since August 2007, and up from a net 10% underweight in January, the press release said. The survey found global investors believe that the corporate outlook is better away from Europe. A net 40% of the panel says the outlook for Eurozone corporate profits is the least favorable of all regions.

“Investors’ concerns about Greece are easing, but European country risk remains a key constraint to optimism over economic recovery,” said Gary Baker, head of European Equities strategy at BofA Merrill Lynch Research, in the announcement. “Investors are more willing to embrace corporate risk, via equities, than sovereign risk,” added Michael Hartnett, chief Global Equities strategist at BofA Merrill Lynch Research.  

According to the BofA Merrill Lynch Regional Fund Manager Survey, the net number of European fund managers predicting growth in their own economy over the coming 12 months has fallen to 45%, down from 72% in January. A net 43% of fund managers in the U.S. forecast growth in the American economy over the next 12 months, down from a net 76% in January.   

Investors in both regions have stronger belief in earnings growth. A net 60% of European respondents predict improved earnings in the coming 12 months, an increase of 11% from February. Respondents in the U.S. are more positive, with a net 72% forecasting earnings growth, up from a net 52% in February.      

U.S. and European investors have significantly scaled back their cash allocations. A net 9% of the European panel is overweight cash this month, down from 26% in February. The corresponding numbers for U.S. investors are a net 8% in March from 19% in February.       

European respondents have increased exposure to cyclical sectors, including Basic Resources and Construction. They have reduced their underweight position on banks. U.S. investors have also increased exposure to cyclicals, such as Industrials and Materials, but have extended their underweight positions in Banks.  
    
A total of 207 fund managers, managing a total of $589 billion, participated in the global survey from March 5 to 11. A total of 165 managers, managing $403 billion, participated in the regional surveys.

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