Amid the dog days of summer, 401(k) plan investors were light traders in July, according to the Alight 401(k) Index.
In fact, there were no above-normal trading days, as Wall Street posted its best month since November 2020, the firm notes in its July 2022 Observations. In comparison, the month of June saw five above-normal trading days. Overall, there have been 33 above-normal trading days for the year-to-date.
Even though trading was light, the trend of investors seeking safer ground also continued, as 13 of 20 days favored fixed income funds, resulting in 106 out of 144 trading days favoring fixed income.
On average, only 0.008% of 401(k) balances were traded daily during July. In addition, total transfers as a percentage of starting balance registered at 0.09% for a year-to-date total of 0.89%.
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
Trading inflows mainly went to stable value, money market and large U.S. equity funds, while outflows were primarily from target date, bond and company stock funds. Stable value funds topped inflows with 59% of the total, for an index value of $114 million. The most outflows were from target date funds at 54%, for an index value of $105 million.
Target date funds, not surprisingly, still received the most contributions in July at 50% of contributions for an index value of $709 million, followed by large U.S. equity funds (20% at $287 million) and international equity funds (7% at $95 million).
After reflecting market movements and trading activity, Alight notes, average asset allocation in equities increased from 67.7% in June to 68.6% in July. Meanwhile, new contributions to equities decreased from 68.7% in June to 68.5% in July.
The Index shows that the common indices that Alight tracks all had positive returns for July. U.S. bonds (represented by the Bloomberg U.S. Aggregate Bond Index) were up 2.4%; large U.S. equities (represented by the S&P 500 Index) were up 9.2%; small U.S. equities (represented by the Russell 2000 Index) were up 10.4%; and international equities (represented by the MSCI All Country World ex-U.S. Index) were up 3.4%. That said, the indices are still in negative territory for the year, with all but Bloomberg (-8.2%) registering double-digit negative returns.
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