Shifts from Equity Insulates Participants from Market Losses

The Callan DC Index lost roughly 6% in Q1, but that loss was mitigated by participants’ failure to rebalance—and to some extent, their general movement away from equity investments. Since the beginning of 2006, the equity allocation of the DC Index has declined 15 percentage points, from 70% to 55% as of the end of March, according to the report.

According to the Callan DC Index, participants were hesitant to transfer balances in Q1, with total Index turnover just 0.35%, compared with 0.51% in the fourth quarter, and well short of the historical quarterly average turnover of 0.73% for the life of the Index.

When money did move, the report authors said it flowed “less decisively” into stable value funds than in past quarters. While the majority of money movement was from equities to stable value funds in the fourth quarter of last year, in 2009’s first quarter, stable value inflows dropped to just 27% of shifting monies.

Equity funds, including domestic large cap, domestic small cap and international equity attracted inflows, which the report’s authors attributed to a result of a rebound in those sectors. Reflecting their position as a typical default vehicle, target-date funds accounted for nearly one-third of inflows, while company stock and balanced funds experienced much of the outflows tracked by the index.

Target-Dates

The reduced equity allocation drove the Index to outperform what Callan called the “average” 2030 target-date fund (which has 81% in equities) by nearly 2.5 percentage points in the first quarter.

According to the announcement, the Callan DC Index is designed to meet the needs of plan sponsors and investment managers by measuring performance and net flow activity of defined contribution plans. The Index tracks the asset flows and performance of approximately 70 participant-directed plans comprised of more than 800,000 participants and $50 billion in retirement assets dating back to January 2006.