August Uptick in Trading Favors Fixed Income

August saw an uptick in trading activity among defined contribution (DC) participants with three days seeing above normal trading activity, according to the the Alight Solutions 401(k) Index.

“Over the last five years, the Index has averaged 32 above normal trading days per year,” explains Rob Austin, director of Research at Alight. “The fact that there have only been six such days this year speaks to how infrequently participants have been initiating trades. There are likely two main forces at play: inertia on the part of investors and a prolonged upward-trending market.”

When it came to trading, most investors preferred fixed income. According to the index, 18 out 23 days in August favored fixed income. Overall, 31% of inflows went to stable value funds, 21% went to money market funds, 21% went to international funds, and 17% went to bond funds. Meanwhile, outflows primarily came from equities and company stock funds. Large U.S. equity funds saw 36% of total outflows. Furthermore, outflows came from company stock funds (22%), small U.S. equity funds (17%) and mid U.S. equity funds (16%).

At the end of August, 67.1% of balances were invested in equities, down slightly from 67.4% at the end of July. Moreover, 67.1% of new contributions were invested in equities, down slightly from 67.3% in July.

The index also showed that target-date funds (TDFs) continue dominating the DC space, accounting for 26% of total balances followed by large U.S. equity funds (24%) and stable value funds (12%).

TDFs were also the asset class that saw the biggest amount of contributions with $454 million or 45% of total contributions coming into these vehicles.

Alight notes, “In August, capital markets saw mostly modest gains for U.S. bonds (represented by the Bloomberg Barclays U.S. Aggregate Index), international equities (represented by the MSCI All Country World ex-US Index), and large U.S. equity funds (represented by the S&P 500 Index).

“The Blomberg Barclays U.S. Aggregate Index returned .9%, the S&P 500 returned .3% and the MSCI All Country World ex-U.S. Index returned .5%. The Russel 2000 Index declined by 1.3% in August.”

On average, 0.016% of balances traded each day of the month ending August 31, 2017.

Alight Solutions defines a “normal” level of relative transfer activity as trading when the net daily movement of participants’ balances as a percent of total 401(k) balances within the Alight Solutions 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. A “moderate” relative transfer activity day is the net daily movement is between 1.5 and two times the average daily net activity of the preceding 12 months. when the net daily movement is between 1.5 and two times the average daily net activity of the preceding 12 months.