The MarketsFebruary 27, 2012

401(k) Participants Turn Back to Equities in January

In contrast to the majority of months in 2011, the net direction of 401(k) participants’ transfers in January 2012 returned to equities.

Reported by Rebecca Moore

According to the Aon Hewitt 401(k) Index, $192 million transferred into diversified equities (equities excluding employer stock) from fixed income investments. However, when also factoring in employer stock outflows, the net movement for the month was flat; essentially zero monies moved between equities and fixed income broadly.

The outflows for company stock were the largest among all asset classes during January, with $200 million (63%) of transfers moving out of this asset class. Stable value funds lost $74 million (23%) while money market funds lost $16 million (5%). International funds, although they experienced significant market gains, still had $29 million (9%) of outflows.

Looking at inflows, the large U.S. equity asset class had $110 million (34%) of inflows from transfer activity, and lifestyle funds (60% equities/40% fixed income) had $98 million (31%). Bond funds also gained with $51 million (16%) of inflows.

Participants’ discretionary contributions, a reliable gauge of sentiment, edged back into equities, with the overall allocation directed to stock funds now at 61.3% in January, up from 59.7% in December.

The total asset allocation ratio between fixed income and equity investments moved further toward stocks, for the first time since October last year. Equities now hold 59.4% of total assets, up 1.1% for the month. However, this allocation overall remains down from the highs reached earlier in 2011 (62.2% in April).

Aon Hewitt noted that despite strong market returns in January, the volume of transfer activity was significantly lower than any previous January recorded by the Aon Hewitt 401(k) Index since its inception in 1997. The daily average was just 0.023% of total defined contribution plan balances. By comparison, over the past 12 months, the daily average has been 0.034% of total balances, while the running January average (tracked since 1998) is now 0.059%. Only two days in January saw transfer volume exceed the trailing 12-month daily average, and one of those days was the first business day of January, which is a day that normally sees high volume.

More information is available at http://www.aon.com/human-capital-consulting/thought-leadership/outsourcing/401k_index/401k_index_observations_list.jsp.