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

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


Market Commentary
  • After reaching a low during the month of April (0.024%), defined contribution plan participants’ daily transfer volumes increased significantly in May—to 0.039% of balances per day, according to the Aon Hewitt 401(k) Index™. The trailing 12-month daily average reached 0.027% and the 2013 average through May was at 0.032%. There were nine separate days in May with transfer activity above normal*, which is three times as many days that occurred in April.
  • Equities were favored over fixed-income investment vehicles during May. The total net transfer activity reflects 55% in equities, up from 41% in April.
  • May proved to be a volatile month for global equity and fixed income investors. The U.S. equity market (as measured by the S&P 500 Index) continued its upward climb throughout the first half of the month until FOMC minutes revealed that Fed members have discussed curtailing asset purchases sooner rather than later. The debate over what impact higher interest rates, as a result of QE tapering, could have on U.S. consumer and business spending; weaker than expected economic data out of China; and a rapid decline in Japanese equities increased equity and fixed income investors’ anxiety. The S&P 500 Index still finished the month in positive territory (up over 2%), however the international equity markets (as measured by MSCI All Country World ex U.S. Index) finished the month over 2% lower and the U.S. fixed income market (as measured by the Barclays Aggregate Index) lost over 1.5%.
  • Total net transfer activity was significant, totaling $486 million or 0.33% of total participant balances. This amount is more than twice April’s total of $200 million, and only January has had higher monthly activity (net $930 million) for the year.
  • Net transfer activity into diversified equities (equity excluding company stock) asset classes totaled $316 million or 0.22% of total assets. However, when company stock is included, the transfers total nets $144 million (0.10%) in movement away from equities.
  • Total net outflows were mainly from two asset classes: bond funds, which decreased by $192 million (40%), and company stock funds, decreasing by $172 million (35%). In addition, small U.S. funds decreased by $45 million (9%) and emerging market funds decreased by $32 million (7%).
  • Most of the transfer inflows were in premixed funds, which received $203 million (42%), which continues a similar trend in recent months. International funds had $127 million (26%) while mid-U.S. funds had $69 million (14%) of inflows. Specialty/sector funds also received nearly $45 million (9%).
  • Employee discretionary contributions, another measure of participant sentiment, decreased to 64.0% in equities for May. This is down from 64.3% in April.
  • By the end of May, participants’ overall equity allocation increased to 62.5%, from 61.9% at the end of April. This level establishes a new high as recorded by the Aon Hewitt 401(k) Index™ since before the financial crisis in 2008.

The following tables show Aon Hewitt 401(k) Index™ statistics and the returns of major market indices for periods ending May 31, 2013.

Index Returns

May 2013 YTD
Barclays Capital Aggregate Bond Index -1.78% -0.91%
S&P 500 2.34% 15.37%
Dow Jones Industrial Average 2.24% 16.64%
Russell 2000 Index 4.00% 16.45%
NASDAQ Index 4.01% 15.05%
MSCI EAFE Index -2.41% 7.94%
MSCI Emerging Markets Index (Net) -2.52% -3.29%

Index Statistics

May 2013 YTD
Average Daily Net Activity 0.039% 0.032%
Number of Fixed Income Days 10 (45%) 44 (42%)
Number of Equity Days 12 (55%) 60 (58%)
Number of Above Normal Days 9 28

*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