Despite Market Rebound, Investors Flocked to Fixed Income in Q119

Even as stock markets rebounded in the first quarter, 401(k) investors moved from equities to fixed-income funds, according to the Alight Solutions 401(k) Index. Investors favored fixed income on nearly 90% of the trading days, 54 out of 61, in the quarter.

In total, there were nine days of above-normal trading activity, three in each month. During the first quarter, investors transferred an average of 0.50% of their balance.

Asset classes with the most trading inflows in the first quarter were bond funds (66%, with $627 million flowing into them), stable value funds (24%, $225 million) and money market funds (6%, $58 million). Asset classes with the most trading outflows in the quarter were large U.S. equity funds (51%, $408 million), company stock (30%, $280 million) and international funds (9%, $88 million).

After steep declines in the fourth quarter of 2018, the start of 2019 was strong for small U.S. equities, which rose 14.6% in the first quarter; large U.S. equities, up 13.7%; international equities, up 10.3%; and U.S. bonds, which rose by 2.9%.

For the month of March, 401(k) investors continued their march into fixed income, with that asset class garnering the majority of the transfers on 95% of the trading days. Year-to-date, fixed income has garnered flows on 89% of the trading days. Investors favored equities on only one day in March. Year-to-date, they have primarily moved into equities on only 11% of the trading days.

In March, an average of a mere 0.014% of 401(k) balances were traded daily. The asset classes with the most trading inflows in the month were bond funds (61%, $226 million), stable value funds (26%, $96 million) and money market funds (6%, $24 million). Asset classes with the most trading outflows in March were large U.S. equity funds (37%, $137 million), company stock (22%, $82 million) and small U.S. equity funds (15%, $54 million).

Asset classes with the largest percentage of total balances at the end of March were target-date funds (TDFs) (29%, for a total of $55.93 billion of assets), large U.S. equity funds (21%, $48.16 billion) and stable value funds (10%, $19.43 billion).

Asset classes with the most contributions in March were TDFs (42%, $835 million), large U.S. equity funds (21%, $416 million) and international funds (8%, $159 million).

The capital markets delivered somewhat poor performance in March. The U.S. bond market was up 1.9%. Large U.S. equities rose 1.9%, and international equities ticked upward by 0.6%. Small U.S. equities fell by 2.11%.