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401(k) Index &  Observations Monthly Details: June 2013 | Aon

401(k) Index & Observations Monthly Details: June 2013 | Aon


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Market Commentary

  • Defined contribution plan participants’ daily transfer volumes remained steady in June, with transfers averaging 0.035% of balance totals per day, according to the Aon Hewitt 401(k) Index™. The trailing 12-month daily average reached 0.028% and the second quarter average was 0.033%. There were five days in June when transfer activity reached above normal* levels, below May’s total of nine days.
  • Global equity and fixed income investors generally experienced a difficult month of June. Weak manufacturing data out of China and the Bank of Japan’s decision to halt additional stimulus measures sparked a sell-off in international and emerging markets equity indices. Additionally, comments from the Federal Reserve alluding to the eventual tapering of quantitative easing increased domestic investor anxiety, sending U.S. equity and fixed income indices lower for the month. Losses ranged from -0.55% in U.S. small cap equities (as measured by the Russell 2000 Index) to -6.37% in emerging markets equities (as measured by the MSCI Emerging Markets Index).
  • Despite June’s negative returns, U.S. equity indices generally finished positive for the second quarter. However, June left the developed international, MSCI EAFE Index in the red for the second quarter and added to losses investors had already been experiencing in emerging markets equity and U.S. core fixed income.
  • Daily trading equally favored both fixed-income and equity-based investment vehicles during June—each type of vehicle had net gains from transfer activity on 50% of the days. Throughout the second quarter, fixed income investments were slightly favored with gains on 52% of the days.
  • This month the total net transfer activity totaled $484 million or 0.35% of total participant balances. The second quarter had $880 million of net transfer activity, which is moderate to low compared with other quarters.
  • Transfers into diversified equity (equity excluding company stock) asset classes totaled $129 million or 0.09% of total assets. For the quarter, the total was $471 million (0.33%). However, when company stock is factored in, the quarterly total is cut in half.
  • Net outflows were concentrated among two asset classes: bond funds, which decreased by $300 million (62%), and premixed funds, decreasing by $157 million (32%). Outflows for the second quarter were also significant among bond funds, decreasing by $528 million (60%), while company stock funds lost $230 million (26%). Emerging market funds also decreased by $67 million (8%) during the quarter.
  • Net inflows were spread out among GIC/stable value funds, receiving $141 million (29%), large U.S. funds, which received $122 million (25%), and money market funds, receiving $71 million (15%). Mid U.S., small U.S., and international funds also had significant gains from transfer activity. Inflows for the second quarter were led by international funds, which received $169 million (19%); large U.S. received $152 million (17%), while mid U.S. and premixed funds each received about 15% of the flows. GIC/stable value and money market funds had significant inflows as well (14% and 12%, respectively).
  • Employee discretionary contributions, another measure of participant sentiment, decreased to 63.8% in equities for June. This is down from levels recorded at 64.0% both at the beginning of the quarter and at the end of May.
  • By the end of June, participants’ overall equity allocation decreased to 62.2% from 62.5% at the end of May. The second quarter began with participant’s equity allocation at 61.8% of total assets.

The following tables show Aon Hewitt 401(k) Index™ statistics and the returns of major market indices for periods ending June 30, 2013.

Index Returns

June 2013 YTD
Barclays Capital Aggregate Bond Index -1.55% -2.44%
S&P 500 -1.34% 13.82%
Dow Jones Industrial Average -1.25% 15.19%
Russell 2000 Index -0.51% 15.86%
NASDAQ Index -1.41% 13.42%
MSCI EAFE Index -3.55% 4.10%
MSCI Emerging Markets Index (Net) -6.37% -9.57%

Index Statistics

June 2013 YTD
Average Daily Net Activity 0.035% 0.032%
Number of Fixed Income Days 10 (50%) 54 (44%)
Number of Equity Days 10 (50%) 70 (56%)
Number of Above Normal Days 5 33

*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