Investing March 2, 2004

Schwab: SDBA Investors Still Diving Into Funds

March 2, 2004 (PLANSPONSOR.com) - In a sign that the ongoing mutual fund scandal apparently hasn't scared them away from the fund space, 401(k) retirement investors with self-directed brokerage accounts (SDBAs) did brisk business in funds and equities during the fourth quarter.
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According to the Charles Schwab Corporate Services’ fourth quarter 2003 SDBA Indicators report SDBA trading activity increased to 2.94 trades per account, the highest since the first quarter of 2001. Further, mutual funds and equities accounted for more than 95% of net asset flows for the quarter, the highest level recorded for the year.

Participants held 43% of their SDBA assets in mutual funds, up 2% from the third quarter (See  Resurgent Markets Buoy SDBA Activity ), Schwab said. Mutual funds captured more than 60% of net asset flows in the fourth quarter. Small cap stock funds led all other categories with 23% of net new assets while International funds and large-cap stock funds followed with 11.8% and 10.3%, respectively.

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“SDBA trading activity increased for the fourth straight quarter, reaching its highest level in three years,” said Jim McCool, senior vice president, Charles Schwab Corporate Services, in a Schwab news release. “While participants continued to invest heavily in mutual funds and equities overall, we also saw an increase in flows into exchange traded funds (ETFs). Some investors may be choosing ETFs as an alternative to mutual funds,”

Also according to the Schwab index,

  • equities comprised 30% of total SDBA assets, up 1% from the third quarter. Significantly, the Equities – Other sector captured 9.3% of net new assets, more than any other equities sector, representing increased interest in exchange traded funds (ETFs).
  • assets in fixed income vehicles and cash and equivalents dropped to 27% in the fourth quarter, down 3% from the third quarter and down 9% from one year ago.
  • on average, participants kept 85% of their total 401(k) plan assets in the SDBA account.

The SDBA Indicators report profiles the investment behavior of approximately 65,000 defined contribution plan participants investing through Schwab’s self-directed brokerage account, the Schwab Personal Choice Retirement Account (PCRA).

SDBAs are brokerage accounts within 401(k) plans and other types of participant-directed defined contribution plans that participants can use to invest in stocks, mutual funds and fixed income securities outside the plan.

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