Amid fears of rising inflation and ongoing market volatility, 401(k) participants remained busy but cautious traders in the second quarter of 2022.
According to the Alight Solutions 401(k) Index, net trading activity significantly favored fixed income during the second quarter, with 51 out of 62 trading days having net trading dollars move from equities to fixed income.
In addition, there were 17 above-normal trading days in the quarter, slightly higher than the 16 above-normal days seen in the first quarter for a total of 33 year-to-date. For the month of June, there were five above-normal trading days and all but three days (18 out of 21 trading days) had net trading flows going from equities to fixed income.
Net transfers as a percentage of starting balances were 0.46%, identical to the percentage seen in the first quarter, Alight notes.
To put into context how much has changed in the past year, at this point in 2021, net trades for the quarter amounted to 0.16% of balances—the lowest quarterly figure in the almost 25-year history of the 401(k) Index. Moreover, there was only one day of above-normal activity and only two for the first half of 2021. In 2020, however, there were 35 above-normal trading days, slightly higher than the 2022 figures.
Alight tracks the 401(k)-trading activity of over two million people with more than $200 billion in collective assets. 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. A “high” relative transfer activity day is when the net daily movement exceeds two times the average daily net activity.
Inflows and Outflows
With net trading inflows going almost exclusively to fixed income funds, stable value funds led the way with 86% of trading inflows for an index value of $964 million. They were followed by money market funds (13% at $148 million) and self-directed window funds (1% at $8 million).
The month of June saw a similar breakdown, with most trading inflows (82%) going to stable value funds for an index value of $368 million, while money market funds received 14% at $62 million and bond funds received 4% at $16 million.
Meanwhile, target date funds saw the most trading outflows during the second quarter, registering at 56% for an index value of $629 million, followed by large U.S. equity funds at 17% or $194 million, and company stock (6% at $62 million).
Contributions and Allocations
Asset classes with most contributions in June included target date funds, at 49% for an index value of $574 million, followed by large U.S. equity funds at 21% (or $245 million) and international equity funds at 7% (or $83 million).
After reflecting market movements and trading activity, average asset allocation in equities decreased from 68.8% in May to 67.7% in June, Alight notes. In addition, new contributions to equities decreased from 69% in May to 68.7% in June.
Market Performance
The 2022 year-to-date returns for common indices (as of the end of the second quarter) shows that U.S. bonds (represented by the Bloomberg U.S. Aggregate Bond Index) were down -10.4%; large U.S. equities (represented by the S&P 500 Index) were -20%; small U.S. equities (represented by the Russell 2000 Index) were -23.4%; and international equities (represented by the MSCI All Country World ex-U.S. Index) were -18.4%.
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