Participant Equities Exodus Continues in March

In fact, during the first quarter of 2008, participants transferred $2.8 billion from equities to fixed-income investments on a net basis, which is the largest quarterly equity outflow during the history of the Hewitt 401(k) Index.  

In March, the overall transfer activity level was slightly above the 12 month trailing average — 0.05% of balances were transferred on a daily basis. Additionally, five days of the month experienced above normal transfer activity, and two of those were “high” volume days – March 10, where transfer activity was more than twice “normal” levels, and March 18, where activity was three times normal.  

GIC/Stable Value

In March, GIC/stable value funds received approximately two-thirds of the inflows, with $608 million moving into this asset class. GIC/stable value funds have been the biggest winner during the past three months, as $1.7 billion flew into these funds, which led to a 2.5% increase in overall allocation in this asset class, according to Hewitt.   The shift from equities mirrored trends in February (see  401(k) Participants Still Fleeing Equities ) and January (see  January Equity Market Upset Ignites 401(k) Equities Exit ).    

On the other hand, large U.S. equity had $277 million transferring out in March, representing more than 30% of the transferred dollars.   During the first quarter of 2008, this asset class lost $879 million in net transfers, according to Hewitt. The asset allocation in large U.S. equity declined from 20.6% at the end of December 2007 to 18.8% at the end of the first quarter of 2008.

And, as the performance of international funds lagged, participant transfers continued to fell.   More than a quarter of the month's transfers came from international and emerging markets funds.   Hewitt noted that $193 million transferred out of these funds in March, and a total of $756 million moved out of international equity during the quarter - a huge turnaround from 2007 (see  401(k) Transfers in 2007 Had International Flavor ).

When the dust settled, GIC/stable value held more than 23% of total participant balances, large US equity held nearly 19%, and there was still more than 16% in company stock.   Lifestyle/pre-mix was a distant fourth, with just 9% of the balances, while roughly 6% was in balanced offerings.

Contribution Flows

During the first quarter of 2008, employee discretionary equity contribution went down slightly each month. By the end of March, 66.7% of discretionary contributions were made to equities compared to 68.4% at the end of 2007.   Still, in March more than one dollar in five of participant contributions went to large US equity funds.   Lifestyle/pre-mix was right behind, capturing 18%, while Stable value/GIC was just behind with nearly 17% of the current month's contributions.

Hewitt noted a much larger declined in total equity allocation versus participant contribution during the first quarter of 2008, due to market weakness and participant transfers. Participant overall allocation to equities went down 3.8% by the end of March, according to the firm.