Investing February 9, 2004

Hewitt: K Plan Equity Love Affair Hot As Ever in January

February 9, 2004 (PLANSPONSOR.com) - 401(k) investors picked up in 2004 where they left off at year-end 2003 - in a budding love affair with equities at the expense of fixed income.
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According to the Hewitt 401(k) Index for January, assets moving into equities on 90% of the month’s trading days represented the most decisively equity oriented transfer activity month in the history of the index. Ten percent (2 days) were classified as fixed income sessions. Between the momentum the equity market generated on its own during January and the asset transfers, Hewitt said K plan participants ended the month with the highest equity allocation (66%) since May 2002.

Participants expressed their deep affection for stocks through greater-than-average transfer activity – most of which traveled the fixed income to equity highway. Dollars transferred averaged 0.074% of daily balances during January with the “moderate” or “high” movement on five days. That compares with one above normal transfer activity day during Q403, Hewitt said. The index tracks roughly $70 billion in 401(k) balances from some 1.5 million participants.

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Of the almost $1 billion shifted into diversified stock investments – particularly small US equity, large-cap and international – most ($500 million) was from GIC/stable value.  As Hewitt pointed out, the trend favoring equities during the month was simply a continuation of a trend that kicked off early in 2003.

While the budding bull market is pushing much of the asset transfer activity, Hewitt said that K plan participants continued to move money into equities even when stocks were down, such as January 28 when the S&P dropped by more than 1%.

Hewitt reported in January that o n a majority of days in 2003 (55%), investors opted for equity investments over fixed income options.  In fact, 2003 saw $2.4 billion moving into diversified equity funds, which is a reversal of the mass exodus from equity to fixed income from the past few years (See  Hewitt: K Plan Participants Roar Back To Equities in ’03 ).

Also reporting gains on the broader markets were the S&P 500 (1.84%), the Nasdaq (3.13%), the Russell 2000 (0.33%) and the Lehman Aggregate (0.80%). 

At the close of January, the majority of participant accounts were held in Company Stock (24.54%) followed by GIC/Stable Value (22.50%) and Large US Equity (22.34%).  Other holdings included:

  • lifestyle/premix (6.31%)
  • balanced (6.09%)
  • small US equity (4.57%)
  • international (3.48%)
  • bond (3.24%)
  • money market (2.51%)
  • mid US equity (2.62%)
  • self-directed window (1.25%)
  • emerging markets (0.41%)
  • specialty/sector (0.15%).

New contributions painted a slightly different picture with large US equity leading the way at 26.57% followed by GIC/stable at 18% and company stock at 16.87%.  The rest of the contributions shook out as:

  • lifestyle/premixed (7.40%)
  • small US equity (6.63%)
  • bond (5.41%)
  • balanced (4.74%)
  • international (4.55%)
  • money market (3.91%)
  • mid US equity (3.49%)
  • self directed window (1.57%)
  • emerging markets (0.66%)
  • specialty/sector (0.20%).

More information and Hewitt’s data can be found at   http://was4.hewitt.com/hewitt/services/401k/observ/04_january.htm .

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