DC Participants Favor Fixed Income in February

Findings from the index show that 10 of the 19 trading days last month saw fixed income receive transfer inflows. Overall, net transfer activity for February moved slightly away from diversified equities (equity assets excluding company stock) of $21 million (0.01%). Total transfer activity across the index was low, valued at $264 million (0.17%). On the other hand, employee discretionary contributions to equities, another measure of participant sentiment, increased to 66.5% in February, up from 65.6% in January.

Overall, DC plan participants’ daily transfer volume for February averaged 0.023% of total daily balances, slightly lower than last month (0.025%). This is below the 12-month daily average of 0.027%. In February, two days had transfer activity above-normal levels. In this context, normal is defined as when the net daily movement of participants’ balances as a percent of total 401(k) balances within the Aon Hewitt 401(k) Index equals between 0.3 times and 1.5 times the average daily net activity of the preceding 12 months.

On average, the index shows that participants’ overall equity allocation increased to 65.5% at the end of February, up from 64.7% in January.

February was also shown to be a strong month for the global equity markets, as they rebounded from their poor showing in January. With U.S. equities, as measured by the S&P 500 Index, the gain for February was 4.6%, and with non-U.S. equities, as measured by the MSCI All Country World ex-U.S. Index, the gain was 5.1% for the month. Emerging markets also increased during February as the MSCI Emerging Markets Index returned 3.3%. The fixed income market posted a positive return, with the Barclays Capital Aggregate Bond Index gaining 0.5%.

The index notes that fixed income asset classes experienced net inflows during February. Bond funds had the largest inflows with gains of $79 million (30%) and GIC/stable value funds followed with a gain of $51 million (20%). In addition, specialty/sector funds had $35 million (13%) of the monthly inflows, while international funds and self-directed window funds both received around $29 million (11%).

As for net outflow, activity was led by company stock funds with $191 million (73%), large U.S. equity funds with $37 million (14%), and small U.S. equity funds with $28 million (11%) transferring out.