September was a slow month for 401k trading, with only one above-normal activity.
However, when investors made trades, they favored fixed-income funds, with over 90% of net trading dollars moving from equities into fixed income, and Q3 2019 marked the seventh consecutive quarter where 401k traders favored fixed-income funds over equities.
The Alight Solutions 401(k) Index found that on average for the month, 0.016% of 401k balances were traded daily, and 19 of 20 days favored fixed-income funds.
Trading inflows mainly went to stable value, bond and money market funds, while outflows were primarily from large U.S. equity, company stock, and mid-U.S. equity funds.
After reflecting market movements and trading activity, the average asset allocation in equities decreased from 67.5% in August to 67.1% in September. New contributions to equities also decreased from 67.6% in August to 67.5% in September.
September market observations
Equity markets were broadly positive in September with international equities (represented by the MSCI All Country World ex-U.S. Index) up 2.6%, large U.S. equities (represented by the S&P 500 Index) gaining 1.9% and small U.S. equities (represented by the Russell 2000 Index) rising 2.1%. However, U.S. bonds (represented by the Bloomberg Barclays U.S. Aggregate Index) fell 0.5%.
A normal level of trading activity is when the net daily movement of participants’ balances as a percent of total 401(k) balances within the Alight Solutions 401(k) Index equals between 0.3 times and 1.5 times the average daily net activity of the preceding 12 months.
A high level of trading activity is when the net daily movement exceeds two times the average daily net activity.
A moderate level of trading activity is when the net daily movement is between 1.5 and two times the average daily net activity of the preceding 12 months.
Target date funds also include the amounts in target risk funds. The amount in the target risk funds is less than 10% of the total.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
