Following a month when all trading days favored fixed income, 401(k) investors resumed trading into equities, according to the latest Alight Solutions 401(k) Index.
With the S&P 500 posting its best November ever, there were nine days during the month where net trades went from fixed income to equities. By comparison, October had no such days, which was the first time in the more than 20-year history of the Index that an entire month saw net trading flows move to fixed income.
After reflecting market movements and trading activity, average asset allocation in equities increased from 65.4% in October to 66.9% of balances at the end of November, which Alight notes is the highest value since January 2020 before the COVID-19 pandemic.
On average, 0.024% of 401(k) balances were traded daily with only three above-normal days of trading activity. For the year-to-date, there have been 47 above-normal days, with the large majority of those coming in the first half of 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. A “high” relative transfer activity day is when the net daily movement exceeds two times the average daily net activity.
Total transfers as a percentage of starting balance for November was remarkably light at only 0.16%, compared to 0.54% for October and 3.51% for the year-to-date.
Inflows and Outflows
Even though nearly half of the trading days favored equities during November, trading inflows mainly went to bond, stable value and target date funds, while outflows were primarily from company stock, large U.S. equity and balanced funds.
According to Alight’s data, bond funds reaped the highest percentage of trading inflows for the month, at 61% for an index dollar value of $219 million, while 19% went to stable value funds (or $66 million) and 8% went to target date funds (or $28 million).
The largest asset class with most trading outflows in November went to company stock, at 47% for an index value of $167 million, followed by large U.S. equity funds at 20% (or $72 million) and balanced funds at 13% (or $46 million).
Not surprisingly, asset classes with most contributions for the month went to target date funds at 47% for a value of $479 million. Large U.S. equity funds received 20% ($204 million), while international equity funds received 7% ($72 million).
And talk about a market on fire—all indices gained in November with all equities reaching double digit returns. U.S. small equity (represented by the Russell 2000 Index) was up 18.4%, international equity (represented by the MSCI All Country World ex-U.S. Index) rose 13.5%, and U.S. large equity (represented by the S&P 500 Index) was up 11%, Alight notes. U.S. bonds (represented by the Bloomberg Barclays U.S. Aggregate Index) also gained 1%.