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

401(k) Index & Observations Monthly Details: October 2013


Market Commentary

  • The Aon Hewitt 401(k) Index™ had six days of above-normal* daily transfer activity during October, occurring on the following dates: 7th–9th, 17th –18th, 21st. The high volumes coincided with the timing of lawmakers’ negotiations around the government shutdown and debt ceiling. Through the month, daily transfer activity averaged 0.035% of total account balances per trading day. The monthly average was moderately above the trailing 12-month daily average, at 0.030%.
  • October began with investors focused on the government shutdown and concerns about a potential government default should the debt ceiling not be raised. Late in the day on October 16, Congress reached a deal to reopen the government and raise the debt ceiling. This deal, combined with the speculation that the Federal Reserve may further delay any plans to start tapering its bond-buying program, had a positive impact on capital market results for the month.
  • Large U.S. equities (as measured by the S&P 500) gained 4.6% during the month while small U.S. equities (as measured by the Russell 2000) gained 2.5%. Interest rates continued to decline (since rising in early September) with the yield of the 10-year Treasury falling to 2.57% at the end of the month. The Barclays Aggregate ended October in positive territory, rising 0.8% for the month. Positive news from Italy, the UK, Asia, the Czech Republic and China helped bolster the international equity and emerging markets as the MSCI EAFE Index and MSCI Emerging Markets Index posted October returns of 3.4% and 4.9%, respectively. Commodities were the worst-performing asset class in October, negatively impacted by falling oil prices.
  • In October, 61% of the trading days favored equities instead of fixed income investments. The first seven trading days of the month moved toward fixed income at an accelerated rate. Transfers then reversed direction toward equities after October 9, with the exception of two trading days.
  • Net transfer activity for October heavily favored diversified equities (equity assets excluding company stock) with $384 million (0.26%) flowing in. Total activity across the Index was moderate with $428 million transferring for the month.
  • Outflow activity was led by company stock funds, with $143 million (33%) transferring out, and also by GIC/stable value funds, with $141 million (33%) transferring out. In addition, bond funds had $100 million (23%) of outflows, and premixed funds decreased by $30 million (7%).
  • Net inflows for October were led by large U.S. funds, which received $141 million (33%) from flows, and international funds received $127 million (30%). Both small U.S. and mid U.S. also had increases, each with $102 million (24%) and $41 million (10%) of inflows.
  • Employee discretionary contributions, another measure of participant sentiment, increased to 65.0% in equities for October, up slightly from 64.9% in September.
  • As markets rallied and transfer activity favored equities, participants’ average equity allocations reached 64.1% by the end of October, up from 63.3% at the beginning of the month.

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

Index Returns

October 2013 YTD
Barclays Capital Aggregate Bond Index 0.81% -1.10%
S&P 500 4.60% 25.30%
Russell 2000 Index 2.51% 30.90%
NASDAQ Index 3.98% 31.15%
MSCI EAFE Index 4.86% 0.29%
MSCI Emerging Markets Index (Net) 6.50% -4.35%

Index Statistics

October 2013 YTD
Average Daily Net Activity 0.035% 0.030%
Number of Fixed Income Days 9 (39%) 103 (49%)
Number of Equity Days 14 (61%) 108 (51%)
Number of Above Normal Days 6 43

*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