Trading volumes were mostly characterized as “normal” throughout the month, according to the Hewitt 401(k) Index, and averaged just 0.08% of total balances per day.   Still, trading was about 1.5 times normal on March 14 involving 0.13% of total balances.   Activity returned to normal – but at the high end of normal, with 0.12% and 0.11% of total balances transferred on the following two trading days immediately prior to the dropping of the first bombs on Iraq.   Interestingly enough, participants favored fixed-income investments on a net basis on the first day, flipped back to equities on the second day, and then again favored fixed-income investments on a net basis on March 18.

“Shock and Awe?”

Then, following a two-day respite, on Friday, March 21, following the kickoff of the “shock and awe” campaign, as major US stock indices climbed 2-3%, transfer activity picked up again, totaling nearly 2 times normal volumes on that Friday and the following Monday.   Once again, investors favored equity investments on the first day (likely buying in at the close of trading at a relatively high price), only to flee back to fixed income on a net basis the following session – as major stock indices shed 3.5% on average.     

Hewitt notes that it is typical for participants to move money toward equities on days when the market rises and toward fixed income on days when the market declines.   Of course, a participant who moves to equities on a day when the market rises rapidly will likely buy in at a high price, rather than benefit from the day’s run-up in price, and vice versa.   Fortunately, most don’t appear to be transferring those balances.   The Index tracks the activity of nearly 1.5 million participants with some $75 billion in assets.

Fixed “Incoming”

In March transferring monies headed to fixed-income investments on 57% of the trading days, a declining shift compared with the 89% and 67% of days that favored fixed income on a net basis during February and January.

Despite those shifts, Hewitt notes that there were only five above-normal transfer activity days in the entire first quarter.   Overall, for the first quarter, $660 million in balances shifted to GIC/stable value investments, primarily from large US equity and company stock investments.

GIC/stable is currently the largest asset class in the Hewitt 401(k) Index, at 28.94% of total balances, but company stock continues to represent 23.19%, and large US equity comprises nearly 20%.   Balanced offerings represent 6.87%, bonds 5.69%, and lifestyle funds made up 4.73% of the total participant balances at the end of March.

Large US equity offerings continue to be most popular for new contributions, evidenced by the nearly 25% of new monies deposited there.   Company stock drew 22.71% of March contributions, while GIC/stable value received nearly 19.5%.   Bond funds drew 7.10% and lifestyle funds received 5.53%.   Balanced funds got just 3.88% of the total, compared with small US equity, which drew 4.11% and international, which pulled nearly 4%.