As the S&P 500 was posting its best quarterly performance since 1998—much of it a rebound from steep market drops due to the global pandemic—401k investors were surprisingly light traders in the second quarter.
The Alight Solutions 401(k) Index reported only six days of above-normal trading activity, a sharp decline from the 29 above-normal days in the first quarter.
When investors made trades, they tended to move money from equities to fixed income.
Net transfers for Q2 were 0.50% of balances, and 39 out of 63 trading days in the second quarter had net trading dollars moving from equities to fixed income.
All indices recovered from severe volatility caused by COVID concerns. The Russell 2000 Index rose 25.4%, the S&P 500 gained 20.5%, and the MSCI All County World ex-U.S. Index was up 16.1%.
Additionally, U.S. bonds (represented by the Bloomberg Barclays U.S. Aggregate Index) gained 2.9%.
June jump
The start of summer saw an uptick in 401k trading activity, and total net transfers as a percentage of starting balance was 0.26%—much higher than 0.11% in May and 0.13% in April, but significantly lower than 0.96% in March. There were three days of above-normal activity.
On average, 0.023% of 401k balances were traded daily and 17 of 22 days favored fixed-income funds.
Trading inflows mainly went to bond, stable value and money market funds while outflows were primarily from large U.S. equity, target date and company stock funds.
After reflecting market movements and trading activity, average asset allocation in equities increased from 65.4% in May to 65.6% in June and new contributions to equities increased from 67.2% in May to 67.5% in June.
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 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” relative transfer activity day is when the net daily movement exceeds two times the average daily net activity. A “moderate” relative transfer activity day 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.