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2013 401(k) Index™ Comments | Aon

2013 401(k) Index™ Observation Comments


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  • Participants strongly favored equities during 2013, transferring heavily out of fixed income investments, according to the Aon Hewitt 401(k) Index™. Diversified equities (equities excluding company stock funds) received 2.1% of total assets (amounting to $2.82 billion) in net transfers for the year—the highest transfer level to that category since 2003.
  • The U.S. and global equity markets posted double digit gains during 2013, with the S&P 500 Index and MSCI All Country World ex U.S. Index returning 32.4% and 15.3%, respectively. The fixed income markets, in general, had a rough year, as the Barclays U.S. Aggregate declined by 2.0%. However, high-yield bonds delivered strong relative performance, as the Barclays U.S. High Yield Index returned 7.4% during 2013.
  • During the year, a total of 47 days had above-normal* daily transfer activity—more than twice the number of occurrences in 2012. In 2013, 0.029% of total balances were transferred daily, on average, which exceeded the 2012 daily average (0.024%) but remained below the 2011 and 2010 daily averages (0.035% and 0.036%, respectively). On the other hand, 2013 had 2.71% of participants’ balances ($3.67 billion) move between funds on a net basis, which is above any year since 2008.
  • Throughout 2013, transfers into diversified equities were positive each quarter, with the highest levels occurring in Q1 and Q4, as shown below. These results contrast with the outflows experienced by the diversified equities categories in 2011 and 2012.


Net Diversified Equity Inflows/(Outflows)

Period $ millions % of Total Index
Q1 2013 1,192 0.9%
Q2 2013 471 0.3%
Q3 2013 106 0.1%
Q4 2013 1,054 0.7%
2013 Full Year 2,823 2.1%
2012 Full Year -767 -0.6%
2011 Full Year -1,580 -1.3%

 

  • The broader equity category, which includes both company stock and diversified equity asset classes, also experienced positive transfers in 2013 of $1.16 billion, despite continued transfer activity out of company stock. In 2013, $1.66 billion was transferred out of company stock, representing 1.2% of total assets, which is comparable to the experience in 2012 (1.1% transferred out) and higher than the activity in 2011 (0.7% transferred out).
  • Transfer outflows among asset classes were led by bond funds for the year, which had $1.88 billion (51%) of net outflows in 2013. In every year since 2006, bond funds had been experiencing inflows. Most recently, in 2012, $911 million transferred into bond funds. The other asset class having significant outflows in 2013 was company stock, which lost $1.66 billion (45%). Emerging market funds represented the final 4% ($128 million) of the outflows.
  • The asset class with the largest transfer inflows in 2013 was large U.S. equity funds, receiving $936 million (25%), followed closely by international funds with $904 million (25%). Until 2013, large U.S. funds have seen net outflows every year since 2003, and transfers have generally flowed out of international funds as well since the 2008 financial crisis. Looking further, small U.S. and mid U.S. funds each received about $400 million (11%) of inflows during the year. Contrary to bonds, within fixed income asset classes, money market funds received $282 million (8%), while GIC/stable value funds had $240 million (7%) of net inflows.
  • The overall asset allocation across asset classes ended 2013 with 65.2% in equities—a significant increase from 59.4% of assets invested in equities at the end of 2012. Generally speaking, this ratio rose steadily throughout the year.
  • By asset class, substantial asset allocation changes occurred during the year. Strong market performance (and to a lesser extent transfer activity) contributed to the large U.S. asset class increasing its total share by 3.7%, to a total of 22.7% of balances at year end. The premixed asset class also grew significantly, from 17.3% to 19.1% throughout the year. In addition to market and transfer activity, the premixed asset class gained share due to the increased utilization of target date funds within 401(k) plans. On the other hand, the positive equity market and more challenging bond market drove a reduction in share of more conservative asset classes. For instance, the GIC/stable value asset class dropped from 18.9% to 15.4% throughout the year. Similarly, assets allocated to bonds fell from 10.8% to 7.9% in 2013. Finally, as noted above, in aggregate, participants continued to transfer away from the company stock asset class, which stood with 11.0% of Index assets at the end of 2013, down from 11.5%.
  • In February 2009, the Index noted an all-time high of 52.3% allocated to fixed income, following the 2008 financial crisis. Subsequently, aggregate allocations have trended away from fixed income and into equity asset classes. By the end of 2013, following nearly five years of generally favorable stock market performance, the total allocated to fixed income within the index stood at 34.8%, which is in line with the average (35.4%) and median (34.1%) statistics since the Index’s inception in 1997.
  • Participant contributions, a reasonable gauge of employee sentiment, also tell a story favoring equities. By the end of 2013, participant elections in equity investments had grown to 64.1%, up from 61.7% at the start of the year. This allocation level reached as high as 65.2% during 2013, which occurred in November.

The following tables show Aon Hewitt 401(k) Index™ statistics and the returns of major market indices for January 1, 2013 through December 31, 2013.

Indices Returns

Barclays Capital Aggregate Bond Index -2.0%
S&P 500 32.4%
Russell 2000 Index 38.8%
MSCI All Country World ex U.S. Index (net) 15.3%

Index Statistics

Average Daily Net Activity: 0.029%
Number of Fixed Days 118 (47%)
Number of Equity Days 134 (53%)
Number of Above Normal* Days: 47


*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 2 times the average daily net activity of the preceding 12 months.

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