August Transfers Slow – Some

While slackening somewhat from the pace of the prior month participant transfers were uncharacteristically busy during August. 

On average, 0.08% of balances moved daily during the month, compared to typical August average daily transfer activity levels that approximated 0.06% of balances, according to Hewitt.

Filing Furor?

However, unlike July which registered three high volume transfer days, August contained just one – August 14 – perhaps coincidentally the deadline for executive certifications of company financials to the Securities and Exchange Commission (SEC). 

Transfer volumes were more than 2.25 times normal on that day, and 0.17% of total balances, as participants shifted toward stocks on a net basis.  On that day major US stock indexes recovered from earlier losses to close about 3% higher across the board.

While participants may have bought at a relative high point on that day, participants primarily favored fixed income investments on a net basis during the month. 

In fact, on more than two-thirds of the trading days during the month, fixed income investments prevailed.  That trend, however, was down from June.

Moderate volume trading days occurred on August 19 and 20, but otherwise trading volumes were within normal ranges for the month.  In contrast, August 1998 saw eight above normal volume trading days. 

Hewitt notes that a “normal” level of relative transfer activity is when the net daily movement of participants’ balances as a percent of total 401(k) balances within the Hewitt 401(k) Index equals between 0.3 times and 1.5 times the average daily net activity of the preceding 12 months.

A “high” relative transfer activity day is when the net daily movement exceeds two times the average daily net activity, while “moderate” activity occurs when the net daily movement is between 1.5 and two times the average daily net activity of the preceding 12 months.

Fixed Positions

Contribution allocations (which include both participant and company contributions) continued to shift away from stock investments to fixed income during August.

In August, roughly 64% of new contributions flowed toward equities, compared with a historical trend of 74%.

As for the overall allocation of assets, company stock continued to hold on to the lead, representing 26.22% of the total assets tracked by Hewitt. 

However, that was down from the more than 27% registered in July – and just barely ahead of the 26.04% held in GIC/ Stable Value investments.  Large US equity continued to enjoy third position, with 18.34% of the total, down from more than 20% a month ago, while balanced offerings comprised 9.54% and bond funds were 4.80% of the total.

New Directions

While some of the shift in allocations was market-induced, there was also change afoot in the direction of new investments, according to the Hewitt Index. 

 Large US equity investments, which garnered nearly 30% of new monies in June, drew less than 24% in August. 

GIC/Stable Value offerings pulled in more than 20% during the month, compared with just 17% the prior month.  However, company stock – which drew just 18.6% of June contributions, made up more than 20% of the August inflow.

Other sectors attracting new contribution monies were:

• Bond – 7.19%
• Lifestyle/premixed – 7.13%
• Balanced – 6.92%
• Small US equity – 4.41%
• International -3.64%.