Alight's 401(k) index shows light Q3 trading despite September Fed hike

Alight Solutions' third-quarter update to its 401(k) index put 0.18% of assets transferred during the quarter, PLANADVISER reported Oct. 12. The index recorded four above-normal trading days, down from 10 in the second quarter.

September trading ran at 0.06% of assets transferred, an acceleration from a month of record-low activity in August but still slow. Only one September session reached above-normal volume: Sept. 15, the day before the Fed's policy meeting, which ran at 2.33 times the trailing 12-month average.

The Federal Reserve's Sept. 16 decision to raise its benchmark rate by 25 basis points did not produce a follow-on burst, per Alight's index. Over the 10 trading days after the announcement, activity averaged 0.59 times the trailing average and never reached an above-normal level.

Participants' money moved toward bonds and cash, with fixed-income funds drawing net inflows on 17 of 21 September trading days and 42 of 64 in the quarter. Bond funds took 47% of third-quarter inflows; stable value and money markets received 20% each. Large-cap U.S. equity funds supplied 46% of outflows and target-date funds 24%.

September's inflow mix leaned harder toward capital preservation: 48% went to stable value, 39% to money markets and 4% to premixed funds. Large-cap U.S. equity (43% of outflows), mid-cap U.S. equity (23%) and international equity (18%) accounted for the money leaving.

All four benchmarks Alight tracks fell in September — the Bloomberg U.S. Aggregate Bond Index, the S&P 500, the Russell 2000 and the MSCI All-Country World ex-U.S. Index — and the Bloomberg and Russell indexes were down for the quarter overall.

"The tilt toward fixed income grew each month," Adam Vredeveld, a senior client manager for defined contribution at Alight, wrote to PLANADVISER. Fixed income was favored on 50% of trading days in July, 67% in August and 81% in September, he wrote.

Vredeveld attributed the low volume to plan design rather than to anything participants concluded about markets. Automatic enrollment brings more workers into plans and places them in the default investment, while target-date and other managed options handle allocation and rebalancing inside the fund, he wrote, leaving participants fewer decisions of their own. "Low trading could reflect discipline, disengagement or simply the effect of good defaults," he wrote.