Participants Flocking to Fixed Income in 2016

As stocks tumbled in January, defined contribution (DC) plan participants were busy making trades, according to the Aon Hewitt 401(k) Index.

January had six days of above-normal trading activity and saw 0.39% of balances traded in the month—well above December’s value of 0.14% and the highest level since January 2013. Participants heavily favored fixed income over equities when they made trades with 82 cents of every dollar traded going from an equity instrument to a fixed income fund. Additionally, 14 out of 19 (74%) of the trading days showed more inflows to fixed income.

GIC/stable value funds, Bond funds, and Money Market funds saw the most inflows at $348 million, $172 million and $106 million, respectively. The most trading outflows were in target-date funds ($251 million), Large U.S. Equity funds ($145 million) and Small U.S. Equity funds ($58 million).

After reflecting contributions, trades, and market activity in participants’ accounts, the percentage in equities decreased to 64.1% at the end of January, down from 65.4% at the end of December. Despite the movement of current balances to more conservative investments, participants were still keen on investing new money in stocks, as contributions to equities increased to 66.3% from 63.7% in December.

February was a slow trading month for 401(k) plan participants with a daily trading average of 0.024% of balances—down from 0.034% in January. There was one day of above-normal trading activity.

However, when participants traded, most inflows were into fixed-income funds, just as in January.

In February, Bond funds took in $191 million of DC participants’ assets, while GIC/stable value funds and Money Market funds saw inflows of $91 million and $29 million, respectively. Target-date funds lost $97 million in participants’ assets, while company stock funds and Large U.S. Equity funds posted outflows of $85 million and $66 million, respectively.

After combining contributions, trades, and market activity in participants’ accounts, the percentage in equities was 64.0% at the end of February, down slightly from 64.1% at the end of January. New contributions still favor stocks, but the contributions to equities decreased slightly from 66.3% in January to 65.9% at the end of February.