The Markets February 8, 2007
Post-Holiday Surges Lift Transfer Volumes Higher
While “inert″ participants seem to be the order of the day, those inclined to direct activity in their 401(k) accounts entered the New Year in a mood for trading.
Reported by Nevin E. Adams
According to the Hewitt 401(k) index, they did so by reversing a trend that favored fixed-income for much of 2006, and in January transfers favored equities on 60% of the trading days (see International, Lifestyle Funds a Hot Spot in Quiet Trading Year).
They also did so in volume – in the process racking up three “high’ volume trading days, where the trading volume ranged from .07% to 0.13% of total balances (the latter, which was nearly 4 times the normal volume, took place on January 3, and may represent a backlog of trading orders placed over the New Year’s market holidays. Another high trading day came just after the MLK holiday, where the market was also closed for a three-day holiday), and two “moderate’ volume days. Those five “above normal’ volume days compare with an average of just two a month during 2006.
Although net transfer activity in January was still modest, with 0.04% of balances transferred daily, this was the highest monthly transfer activity since July 2006, according to Hewitt (see 401(k) Participants Flock to Fixed Income in June).
International “Intrigue”
Once again, International funds proved to be the strongest draw, received the largest inflows among all asset classes, and constituting more than a quarter of all incoming transfers. Large US equity drew another 22%, and lifestyle/asset allocation offerings benefited from more than one-in-five dollars changing funds, some $135 million for the month.
Company stock holdings funded most (62.52%) of the outward movement, with much of the rest coming from GIC/Stable value offerings. More than $407 million shifted out of company stock on a net basis during the month, according to Hewitt, and more than $201 million flowed out of GIC/stable value and money market funds.
Despite those trends, participant contributions – which tend to be less-responsive to market conditions – continued to flow to GIC/Stable Value, drawing nearly 16% of the monthly contribution flow. However, participant contributions remained most committed to large US equity funds, which pulled 22.6% of those dollars, followed by lifestyle funds (15.16%). The obvious allure of international funds among transferring participants notwithstanding, the category drew only about 11% of monthly contributions. Meanwhile, company stock, despite its healthy representation in the outbound transfers category, continued to draw 9% of the monthly contribution inflows directed by participants (and more than 27% of contributions, including employer-directed monies).
Still, at month-end, large US equity was the dominant asset holding, constituting 21.52% of the balances tracked by the Hewitt 401(k) index, while GIC/stable value represented 20%, and company stock was a nearly equal 19.7%. The “hot’ transfer categories of international and lifestyle offerings represented only about 9% and 8% of the total pool, respectively.