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Aon Hewitt 401(k) Index™ Observations
2011 Index Comments

  • Amid a turbulent year, participants continued to favor fixed income investments transferring heavily out of equities, according to the Aon Hewitt 401(k) IndexTM. This is the highest transfer movement out of equities since the 2008 financial crisis.
  • The first quarter had strong market gains, and net transfers marginally moved towards equities ($211 million in total). In the second quarter, this movement reversed into fixed income, and by the third quarter it quickly accelerated in the midst of substantial market volatility. A combined $2.48 billion was moved to fixed income investments in total net participant transfers, reflecting 2% of assets. In comparison, 2010 had $1.42 billion in movement while 2008 had $6.82 billion, which is the highest seen since the Index’s year of inception (1997). June, July, and August were months with the largest transfers away from equities; July and August each had 7 days of high transfer volume, particularly towards GIC/Stable Value funds. The fourth quarter also contributed significantly to the total outflow from equities as $845 million transferred out during this period.
  • During the year, a total of 42 days had high transfer activity exceeding the trailing 12-month daily average, which is higher than the historical average of 37 days annually since the Index’s inception. On average 0.035% of total balances were transferred daily throughout 2011, comparable to 2010 (0.036%). On a net basis for the year 2.34% of total defined contribution balances ($2.83 billion) transferred funds, which is below the historical average (3.04%).
  • Despite the strong return for the Dow Jones Industrial Index (8.37%), Large U.S. Equities lost $702 million from participant transfers in 2011. Small U.S. Equity, International, and Emerging Market asset classes all experienced high market losses for the year, and these asset classes also had large participant outflows. Small U.S. Equities declined by $520 million due to transfers while International and Emerging Market asset classes combined had $501 million of net outflows.
  • On the other hand, with strong fixed income markets, GIC/Stable Value received $1.35 billion in flows, nearly four times larger than in 2010 ($355 million). Bond funds gained $882 million in new transfers, slightly higher than 2010.
  • The overall asset allocation across asset classes ended the year with 58.3% of assets invested in equities, down from 61.6% at the end of 2010. This ratio peaked in April at 62.2% before it dropped.
  • By asset class, substantial asset allocation changes occurred during the year. Out of $126 billion in total assets across all asset classes, Balanced funds fell the most, down 1.87% to 2.87%. Company Stock declined 1.77% (to 12.77%) while International funds were down by 1.08% (to 5.90%). On the other hand the asset classes that gained ground during 2011 were Lifestyle funds (at 16.54%, up 3.40%) and Bond funds (at 8.53%, up 2.49%). The Stable Value class maintained the highest allocation percentage at 23.12% (up 0.91%) of total assets.
  • Participant contributions, a reasonable gauge of employee sentiment, also tell a similar story favoring fixed income investments. At year-end 2011, participant elections to fixed income investments had grown to 40.3% (59.7% in equities) up from 37.6% at the start of the year. Until the past year, overall, participants had been increasing their contribution allocations to equities every year since the financial crisis in 2008, although never reaching the levels achieved prior to the crisis.

The following tables show Hewitt 401(k) Index statistics and the returns of major market indices for the year 2011:

Index Returns

Dow Jones Industrial Average 8.37%
Russell 2000 Index -4.18%
Barclays Capital Aggregate Bond Index 7.85%
S&P 500 2.11%
MSCI EAFE Index -12.14%
NASDAQ Index -1.81%
MSCI Emerging Markets Index (Net) -18.42%

Index Statistics

Average Yearly Net Activity: 0.035%
Number of Fixed Income Days 15
Number of Equity Days 134 (53%)
Percent of Equity Days 118 (47%)
# Above Normal* Days: 42


Monthly Details: Aon Hewitt 401(k) Index™ Observations