401(k) Trading Rose in April

Trading among a sample of more than 2 million 401(k) accounts rose slightly month-over-month in April, with four “above-normal” trading days as compared to two in March, according to Alight’s most recent 401(k) Index released Monday.

On average, 0.009% of 401(k) balances were traded daily, up slightly from March’s .0008%. Bonds dominated inflows at 52% of inbound trades, trailed by money market funds (18%) and large U.S. equity funds (18%).

A decline in the stock markets in April—down 4.2% compared to March—likely caused the investment moves toward bonds, according to Rob Austin, Head of Research, Alight Solutions.

“The negative returns in April caused the flight to safety,” says Austin.  “We’ve seen time and again that when the stock market drops, people tend to sell out of equities and into fixed income.”
Target date funds saw the greatest outflows at 58%, trailed by midsize U.S. equity funds (19%) and small U.S. equity funds (11%). When considering market movements and trading activity, average asset allocation in equities also fell to 71.3% in April from 71.7% in March, according to Alight.

Foggy Outlook

The trading activity increase comes as the longer-term market outlook has been hazy recently with inflation remaining stubbornly persistent despite higher interest rates. Last week, Federal Reserve Chair Jerome Powell struck a note of confidence that inflation would ease, and the reserve kept language in its policy statement issued May 1 that interest-rate cuts are more likely than an increase.

In a Q2 investment outlook published April 30, LGIM America’s Head of U.S. Fixed Income Strategy Anthony Woodside struck a short-term positive note for credit, though cautioned on the longer-term.

“Given robust growth and a Fed that appears biased to ease, we remain fully invested in credit in the short-term,” wrote Woodside, the firm’s head of multi-sector fixed income and investment strategy. “However, we caution that investors should monitor economic data particularly closely in the coming months as the medium-term trajectory of the US economy, and by extension, the monetary policy outlook, hangs in the balance.”

Portfolio Breakdown

Target-date funds, those 401(k) stalwarts, still led in April in terms of the largest percentage of portfolios and the most total contributions.

Alight’s 401(k) Index tracks the trading activity of more than 2 million people with more than $200 billion in collective assets.