401k participants surprised many with their volatile response to the viral pandemic, vastly increasing trading during much of the shutdown and reversing what until then had been mild reactions to market shocks.
Things grew much calmer in April, with only three days of above-normal trading activity, all within the first week of that month.
And now, it seems, the Zen trend is continuing, with May being the lightest month of trading activity for 401k investors in 2020, according to the Alight Solutions 401(k) Index.
On average, 0.018% of balances were traded daily—down from 0.023% in April and 0.078% in March. May had no above-normal days of trading activity, and 13 of 20 days favored fixed-income funds
Trading inflows mainly went to bond funds, international equity, and money market funds, while outflows were primarily from target date, large U.S. equity and company stock funds.
After reflecting market movements and trading activity, average asset allocation in equities increased from 64.7% in April to 65.4% in May, and new contributions to equities remained at 67.2% from April through May
May market observations
Continuing the trend from April, all followed benchmarks had positive returns for May. Small U.S. equity rose 6.5%, large U.S. equity gained 4.8%, international was up 3.3%, and U.S. bonds rising 0.5%.
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.
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.
