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Aon Hewitt 401(k) Index Observations: September 2012 | Aon

401(k) Index & Observations Monthly Details: September 2012


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Market Commentary

  • The Aon Hewitt 401(k) Index™ indicates that defined contribution plan participants transferred monies from equities into fixed income investments in September—a trend that also describes the entire third quarter. Nearly three-quarters (74%) of the days in September favored transfer activities into fixed income funds, representing $237 million in total flows or 0.2% of total assets. However, when company stock activity is excluded, equity outflows account for just $46 million (0.03%) of participant balances.
  • The Index points to continued participant uncertainty in September as daily transfer volumes remained significantly low compared to historical levels. Investors were encouraged by 30 consecutive months of job growth, modest growth in Gross Domestic Product (GDP), the Federal Reserve announcement of QE3 and positive corporate earnings reports. However, with uncertainty around the European debt crisis, high unemployment, and the fact that fewer companies beat revenue expectations this year (lowest level since 2009), most participants elected to maintain their current holdings. On average, only 0.023% of balances transferred on a net daily basis, which is similar to the volume of transfers over the past three months. September did have four days of above-normal* transfer level—the most recorded in a single month this year. This is due to a reduction in the trailing 12-month daily average, which is now a much lower “normal” at 0.026% (compared to 0.035% in January).
  • For September outflows, company stock funds lost $191 million (67%), small U.S. equity funds lost $27 million (10%), and large U.S. equity funds lost $27 million (10%). Similarly, the majority of movement during the third quarter was out of company stock funds. For the quarter, $750 million transferred out of equities, however, company stock accounts for well over half ($472 million) of this activity. The next largest outflows were from the small U.S. asset classes, which lost $154 million (18%) for the quarter.
  • All fixed income asset classes recorded net inflows in September. Similar to August, GIC/stable value funds received the most inflows with $134 million (47%), while bond funds took in $63 million (22%) and money market funds received $23 million (8%). The premixed asset class also had $25 million (9%) of inflows. In the third quarter, both GIC/stable value and bond asset classes took in 36% of the inflows—about $305 million each. Together money market and premixed assets classes accounted for the next 20%. Specialty sector funds also received a noteworthy $46 million (5%) of inflows, which is much higher than usual for this asset class.
  • Another measure of participant sentiment is discretionary contributions (employee-only contributions). In total, 62.1% of employee discretionary contributions were directed to equities for September, which is unchanged from August. For the quarter, an identical 62.1% of employee contributions into the plan were in equities compared to 61.6% during the second quarter, on average.
  • Participants’ overall equity allocation ticked upward hitting 60.0% by the end of September, compared to 59.5% at the end of August. The third quarter began with 59.3% of participant investments allocated to equities.

The following tables show Aon Hewitt 401(k) Index™ statistics and the returns of major market indices for periods ending September 30, 2012.

Index Returns

September 2012 Q3 2012 YTD
Dow Jones Industrial Average 2.75% 5.02% 12.18%
Russell 2000 Index 3.28% 5.25% 14.23%
Barclays Capital Aggregate Bond Index 0.14% 1.58% 3.99%
S&P 500 2.58% 6.35% 16.44%
MSCI EAFE Index 2.96% 6.92% 10.08%
NASDAQ Index 1.70% 6.53% 20.72%
MSCI Emerging Markets Index (Net) 6.03% 7.74% 11.99%

Index Statistics

September 2012 Q3 2012 YTD
Average Daily Net Activity 0.023% 0.024% 0.024%
Number of Fixed Income Days 14 (74%) 43 (68%) 112 (59%)
Number of Equity Days 5 (26%) 20 (32%) 76 (41%)
Number of Above Normal Days 4 6 13

*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) 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. A “moderate” relative transfer activity day is when the net daily movement is between 1.5 and two times the average daily net activity of the preceding 12 months.

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