The Markets July 14, 2009

June Continued 401(k) Bond to Stock Cash Flow

401(k) participants continued their search for higher returns in June by moving almost $270 million out of fixed-income into a range of equity offerings, according to the latest Hewitt 401(k) Index data.
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A Hewitt news release said the June showing capped a second quarter during which almost $800 million flowed into equity positions. The percent of equity-oriented days remained higher during June, with 64% of days experiencing equity-oriented transfers (versus 52% in April). Of the 22 trading days, 14 were equity-oriented.

That followed May’s performance when net monthly transfers slid further in equities and away from fixed income (see “Participant Transfers Follow Equity Market Rally“). In total, $502 million moved out of fixed income during the month.

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During June, Hewitt said, international funds and pre-mixed portfolios saw the largest inflows, with more than $60 million transferred into them. Likewise, pre-mixed funds experienced the largest asset boost ($208 million) for the quarter, followed by large-cap funds ($205 million), and international options ($180 million).

Participants’ overall equity allocation ended the quarter at 53.6%, up significantly from 49% at the end of March, the Hewitt data showed.

The biggest asset loser was in stable value, which Hewitt said gave up $250 million in June and a total of $790 million over the quarter. For the month, 82.84% of transfers were out of stable value offerings while 20.6% were into International funds, 19.5% were into Lifestyle/pre-mix, 13.5% into Emerging Markets, and 13% into Large Equity.

Overall, Hewitt said June was a comparatively quiet month, with an average 0.04% of balances transferred on a net daily basis—slightly below the trailing 12-month average of 0.05%. Only two days during June had above-normal transfer activity levels.

Contributions Up

Not only did 401(k) participants return to equity investments in June, but more contributed to their plans in June, according to the Hewitt 401(k) Index. There were 56.8% of new contributions in June versus 55.7% at the end of March.

Hewitt data showed the 23.4% of employee-only contributions went into Stable Value investments, 21.9% were invested in Lifestyle/Pre-Mixed funds, and 16.9% in Large U.S. Equity. Likewise, the majority of overall contributions went into Stable Value (21.6%), Lifestyle/Pre-Mixed (21.3%), and Large U.S. Equity (15.6%) investments.

The Hewitt data is available here.

The Markets July 14, 2009

Managers Have Expectations for Corporate Earnings Growth

Investment managers expect corporate earnings to increase in the next three months, and a majority expect global GDP growth to accelerate in the next six months, according to the second quarter 2009 Northern Trust Global Advisors (NTGA) survey of investment managers.
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The poll found that 58% of managers expect global inflation to increase in the next six months, compared to just 17% of managers who held that view last quarter, according to a press release. Thirty-nine percent of participants say corporate earnings will increase in the next three months, compared with just 1% who said the same last quarter.

The survey also found a dramatic decline from first quarter in managers who believe the market, as represented by the S&P 500, to be undervalued (80% in first quarter verse 51% in second quarter).

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Other survey findings, according to the press release, include:

  • 79% of managers said that they were either less risk-averse or had no change in their risk aversion in the last three months.
  • 29% and 32% of responders believe that corporate earnings will stay the same or decrease, respectively, in the next three months.
  • Unchanged from the previous quarter, U.S. small-cap equity was ranked as the most attractive investment opportunity. In a sign that managers are now willing to take more risk, second place emerging market equity and seventh place emerging market debt climbed in rankings from the previous quarter.
  • Investment managers cited technology and energy as their top two most attractive market segments, followed by health care, industrials, and consumer discretionary products. Industrials made its first appearance in the top five, edging out consumer staples.

NTGA conducted the survey of more than 70 institutional managers in mid-June.

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