401 (k) equity exposure hits highest in 20 years
The rise in the stock market, coupled with slow and steady trading in stocks, brought 401 (k) investors to their highest level of equity exposure since 2001, according to the latest Alight Solutions 401 Index (k).
Additionally, while April did not have above-normal days of activity, the month saw net trading activity almost every day favoring stocks over fixed income. Average net trading activity was 0.013% of 401 (k) balances, the lowest value since December 2019.
Additionally, only four days favored fixed income funds, while 17 days favored equity funds in April. This appears to be a near reversal from 2020, as most trading days favored transfers to fixed income securities. Cumulative data shows that only 22 days (27%) favored fixed income, but 60 days (73%) favored stocks.
Remarkably, there was only one above-normal trading day in the first four months of 2021. In contrast, 2020 saw 47 days of above-normal trading activity, of which 26 were on a six-week period from the end of February to early April, when the world was grappling with the COVID-19 pandemic.
A “normal” level of relative transfer activity occurs when the net daily movement of participants’ balances as a percentage of total 401 (k) balances within the index is equal to between 0.3 times and 1.5 times l average daily net activity for the previous 12 months. A day of “high” relative transfer activity is when the daily net movement exceeds twice the average daily net activity.
Entrances and exits
The asset classes with the most deal inflows during the month of April went mainly to large US equities, with 44% of inflows for an index value of $ 184 million, followed by funds at target date (17% to $ 171 million) and international stocks (16% to $ 68 million).
When it comes to trading exits, stable-value funds recorded the most in April at 48% to an index value of $ 204 million, followed by bond funds (24% to $ 106 million) and funds from the money market (13% to $ 53 million).
After reflecting market movements and trading activity, the average asset allocation to equities stood at 69.8% at the end of April, which Alight said was the highest value since June 2001. New equity contributions remained unchanged from March at 69.9%.
Cumulative 2021 data for the common indices shows that US bonds (as represented by the Bloomberg Barclays US Aggregate Index) are down 2.6%; large US equities (represented by the S&P 500 index) are up 11.8%; small US stocks (represented by the Russell 2000 index) are up 15.1%; and international equities (represented by the MSCI All Country World ex-US index) gained 6.5%.