Lifestyle Funds the Big Draw in May

Transfer activities as measured by the Hewitt 401(k) Index were equity oriented during two thirds of the days in May. Overall, nearly $240 million transferred into diversified equity funds during the month.

However, approximately one quarter of the transferred money moved into lifestyle funds, which represented the largest inflows ($82 million) in May, and international funds also retained some of their allure, garnering $59 million of the net transfers (18.35% of the inflows).    Oddly, given the flow toward lifestyle options, nearly 19% of the transfers out came from balanced funds.

Stock “Drop”

Participants also continued their moves out of company stock, which, though it encompasses a variety of individual firms, experienced outflows of $123 million, constituting more than 38% of the transfer outflows during the month.   Hewitt notes that a total of $752 million has been transferred out of company stock funds year-to-date.

Bond outflows (27.40%) were close behind, while money market funds contributed nearly 8%, and GIC/stable value were 8.43% of the total outflows.   A month ago participants shifted monies from equities to fixed income investments on 55% of the trading days, as a net of $98 million in assets were moved from fixed income funds to equity funds during the month (see  Participants Cautious Despite Market Uptick in April ).

Those moves notwithstanding, May was a quiet month for participant trading activities. None of the days during the month had what Hewitt terms an above normal level of transfers.   In fact, on average, the net transfers were the same as the trailing 12-month average — only about 0.04% of balances were transferred on a daily basis.   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.

The growing popularity of asset allocation/lifestyle solutions was evidenced by the 18.64% of monthly contributions flowing into that category.   It was the most popular category, just ahead of large US equity funds (17.93%), GIC/stable value (15.53%), company stock (14.75%), and international (10.72%).

In terms of the way participants allocated their discretionary contributions (Participant Only Contributions), the allocation to equity funds was 65.5% in May, which represented almost no change from last month.   However, nearly one contribution dollar in five was deposited to funds in the lifestyle/pre-mixed category, the most popular contribution allocation in May.   Nearly as many (19.56%) was deposited to large US equity options, while 16.77% went to GIC/stable value.   International offerings, the fourth most popular contribution destination, drew 11.67% of contributions, while company stock attracted 7.73%.

Participants' overall allocation to equity investments was 64.3% at the end of May, which was marginally higher than participants' 63.9% overall equity allocation at the end of April.