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January Market Momentum Failed to Move Participants

Practice Management

Markets moved higher heading into the New Year, but participant transfers slipped to a historic low.

According to the Alight Solutions 401(k) Index, January’s three “above-normal” trading days and one day of low trading activity marked the slowest start to the year in the more than 20-year history of the Index.

In fact, the average daily activity for the month was 0.016% – lower than the 0.024% in January 2018 and the trailing 5-year average of 0.025%.

An “above normal” relative transfer activity day is when the net daily movement exceeds two times the average daily net activity in the index, which tracks the 401(k) trading activities of nearly 2 million participants representing more than $200 billion in collective assets.

Alight notes that the U.S. bond market (as represented by the Bloomberg Barclays U.S. Aggregate Index) gained 1.1% in January, while large U.S. equities (represented by S&P 500 Index) rose 8.0% and small U.S. equities (represented by the Russell 2000 Index) gained 11.3%. International equities (represented by the MSCI ACWI ex-US Index) were up 7.6%.

Transfers favored fixed income options on 17 of the 21 trading days of the month, with 79% of those flows going to bond funds ($233 million), and 6% directed to stable value funds. The rest – 8%, or $23 million – went to small U.S. equity funds.

As for where that money came from, about half (43%) transferred from large U.S. equity funds, a quarter (23%) from target-date funds and the rest (22%) came out of company stock funds.

Those outward movements notwithstanding, 47% of new contributions ($697 million) went to target-date funds, 19% was directed to large U.S. equity funds, and the rest (8%) to international funds.