Human Resources
401(k) Index &  Observations Monthly Details: December 2016

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401(k) Index & Observations Monthly Details: December 2016

December 2016 Review

December was a light trading month for investors in defined contribution plans according to the Aon Hewitt 401(k) IndexTM —a sharp contrast to November which saw the highest trading activity in over three years. There were zero above-normal1 trading days in December. On average, 0.017% of balances traded each day and when participants made trades, they favored equities over fixed income funds.


Asset Classes with Most Trading Inflows in December

Percent of Inflows Index Dollar Value ($ mil)
Small U.S. equity funds 34% $130
Large U.S. equity funds 27% $102
Mid U.S. equity funds 19% $71


Asset Classes with Most Trading Outflows in December

Percent of Outflows Index Dollar Value ($ mil)
Company stock funds 43% $163
Bond funds 30% $114
Stable value funds 13% $49

After combining contributions, trades, and market activity in participants’ accounts, the percentage of balances in equities was 65.4% at the end of December, up from 65.0% at the end of November. New contributions continue to favor stocks, but at a lower rate than in the past. In December, 65.2% of employee contributions were into equities—a decrease from 65.7% in November.


Asset Classes with Most Contributions in December

Percent of Contributions Index Dollar Value ($ mil)
Target-date2 funds 43% $451
Large U.S. equity funds 19% $201

Asset Classes with Largest Percentage of Total Balance at end of December

Percent of Balance Index Dollar Value ($ mil)
Target-date2 funds 24% $42,348
Large U.S. equity funds 23% $39,589
Stable value funds 13% $22,657

Fourth Quarter 2016 Review

There were ten days of above-normal trading activity in the fourth quarter of 2016–the highest since the second quarter of 2015. The quarter began with relatively normal activity then spiked in early November, leading up to the U.S. Presidential election. December closed the quarter with light trading activity. In the fourth quarter, 51% of trades favored fixed income over equities with stable value, small U.S. equity, and money market funds receiving the majority of the inflows and company stock, bond funds, and specialty/sector funds having the most outflows.


Asset Classes with Most Trading Inflows in Q4 2016

Percent of Inflows Index Dollar Value ($ mil)
Stable value funds 33% $301
Small U.S. equity funds 20% $184
Money market funds 17% $157

Asset Classes with Most Trading Outflows in Q4 2016

Percentage of Outflows Index Dollar Value ($ mil)
Company stock 71% $648
Bond funds 16% $141
Specialty/sector funds 9% $81

The following table shows Aon Hewitt 401(k) IndexTM statistics for the period ending December 31, 2016:

Index Statistics

December Q4 2016 2016 YTD
Total Transfers as Percent of Starting Balance 0.22% 0.53% 2.13%
# of Fixed Income Days 8 (38%) 32 (51%) 168 (67%)
# of Equity Days 13 (62%) 31 (49%) 84 (33%)
# of Above-Normal1 Days 0 10 28


Market Observations


December

The month was steady for markets as equities saw positive gains and fixed income remained level. U.S. Large-Cap equities (represented by the S&P 500 Index) increased 2% while U.S. Small-Cap equities (represented by the Russell 2000 Index) and international equities (represented by the MSCI All Country World ex-USA Index) increased nearly 3%. U.S. bonds (represented by the Bloomberg Barclays U.S. Aggregate Index) increased by only 0.1% during December.


Fourth Quarter

U.S. equity returns were positive while fixed income and international equities were negative. U.S. Large-Cap equities (represented by the S&P 500 Index) increased nearly 4% and U.S. Small-Cap equities (represented by the Russell 2000 Index) increased nearly 9%. U.S. bonds (represented by the Bloomberg Barclays U.S. Aggregate Index) decreased 3% while international equities (represented by the MSCI All Country World ex-USA Index) fell by just over 1%. The following table shows the returns of major market indices for periods ending December 31, 2016:


Indices Returns

December 4Q 2016 2016 YTD
Bloomberg Barclays Capital U.S. Aggregate Bond Index 0.1% -3.0% 2.7%
S&P 500 Index 2.0% 3.8% 12.0%
Russell 2000 Index 2.8% 8.8% 21.3%
MSCI All Country World ex-U.S. Index (net) 2.6% -1.3% 4.5

1 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 Aon Hewitt 401(k) IndexTM 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. A “moderate” relative transfer activity day is when the net daily movement is between 1.5 and 2 times the average daily net activity of the preceding 12 months.
2 Target-date funds also include the amounts in target-risk funds for companies who do not have target-date funds. The amount in the target-risk funds is less than 10% of the total.



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