A steady stream of trades in one direction made for the heaviest quarter of net trading since the third quarter of 2016, according to the Alight Solutions 401(k) Index.
The firm’s second-quarter observations show that net transfers for the quarter were 0.61% of balances, compared to 0.50% for the first quarter. The 2019 year-to-date net transfers as a percentage of starting balance is 1.10%
As has been the case for the last several months, trading activity throughout the second quarter of 2019 largely favored a move from equities to fixed income funds. In fact, 53 out of 63 trading days in the second quarter had net trading dollars moving from equities to fixed income, according to the Index. For the month of June 17 of 20 days favored fixed income funds.
In addition, the 2019 year-to-date figures show that 107 out of 124 days have favored a move from equities to fixed income investments.
As for above-normal trading days, the second quarter saw 7 days, compared to 16 overall for the year. 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 Index equals between 0.3 times and 1.5 times the average daily net activity of the preceding 12 months.
Inflows and Outflows
Bond funds were at the high end of the asset classes with the most trading inflows in the second quarter, receiving 55% of net inflows with an index value of $661 million. These were followed by stable value funds (23% of inflows with an index value of $283 million) and money market funds (14% with a value of $171 million).
Consistent with the move from equities to fixed income, large U.S. equity funds topped the list of asset classes with the most trading outflows during the second quarter, registering at 55% of net outflows with an index value of $669 million. Trailing these outflows were company stock (23% for an index value of $278 million) and international funds (12% with a value of $141 million).
Despite a dip in the middle of the quarter, most major market indices rose during the second quarter of 2019, Alight notes. Large U.S. equities (represented by S&P 500 Index) were up 4.3%, small U.S. equities (represented by Russell 2000 Index) gained 2.1%, and international equities (represented by MSCI All Country World ex-U.S. Index) rose by 3.0%. U.S. bonds (represented by Bloomberg Barclays U.S. Aggregate Index) gained 3.1%.
June Portfolios
After reflecting market movements and trading activity, average asset allocation in equities increased from 67% in May to 67.7% in June. New contributions in equities decreased from 67.9% in May to 67.7% in June.
Asset classes with the most contributions in June went to target date funds, with 48% of the contributions (or $542 million). TDFs were followed by large U.S. equity funds, receiving 20% of contributions ($223 million) followed by international funds at 7% ($80 million).
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