Alight Solutions 401(k) Index™: 2017 Observations

January 17, 2018 Shruti Patel

2017 was the slowest trading year in the 20 year history of the Alight Solutions 401(k) IndexTM. In total, 1.45% of total plan balances were traded during the year, down from 2.13% in 2016. There were 13 days of above-normal1 daily transfer activity in 2017—less than half the number in 2016 (28) and the trailing 5-year and 10-year averages (30 and 32 days, respectively).

Part of the light trading activity can be explained by the prevalence of target date2 funds, the largest asset class in the 401(k) IndexTM. The percentage of assets invested in target date funds grew in 2017 from 24.1% at the beginning of the year to 27.2% by the end of the year. Much of this growth can be attributed to the fact that target date funds receive the lion’s share of new 401(k) contributions. In 2017, 43% of contributions were to target date funds.

Strong investment returns also likely contributed to the light trading activity. 2017 proved to be a generally positive year for investors. Large cap U.S. equities (represented by the S&P 500 Index) and international equities (represented by the MSCI All Country World ex-U.S.A. Index) provided strong returns with little volatility throughout the year. Bonds (represented by the Bloomberg Barclays Capital U.S. Aggregate Bond Index) and small cap U.S. equities (represented by the Russell 2000 Index) experienced periods of volatility but still provided positive returns over the last 12 months.

“During the 20-year history of the 401(k) IndexTM, trading activity typically spikes when there is a downturn in the market,“ said Rob Austin, head of research at Alight. “In general, 2017 saw the markets steadily rise, so rather than rebalancing, 401(k) investors stayed the course and enjoyed positive market returns."

 

Asset classes with most trading inflows in 2017

  Percentage of inflows Index dollar value
($ mil)
International funds 54% $1,349
Emerging markets funds 11% $266
Bond funds 10% $254

 

Asset classes with most trading outflows in 2017

  Percentage of outflows Index dollar value
($ mil)
Company stock 57% $1,426
Stable value funds 18% $461
Small U.S. equity funds 16% $392

 

Asset classes with most contributions in 2017

  Percentage of contributions Index dollar value
($ mil)
Target date funds 43% $5,959
Large U.S. equity funds 19% $2,650
International funds 8% $1,105

 

After reflecting contributions, trades, and market activity, 401(k) investors ended 2017 with 68.6% in equities, up from 65.4% at the beginning of the year.

Percentage of balances by asset class

  Year end 2017 Year end 2018 Change
Money market 1.1% 1.4% (-0.3%)
Stable value 10.1% 12.9% (-2.8%)
Bond 7.5% 8.5% (-1.0%)
Balanced 2.3% 2.6% (-0.3%)
Target date funds 27.2% 24.1% 3.1%
Large cap U.S. equity 23.8% 22.6% 1.2%
Mid cap U.S. equity 5.2% 5.0% 0.2%
Small cap U.S. equity 3.2% 3.9% (-0.7%)
International 8.1% 7.1% 1.0%
Emerging markets 0.7% 0.5% 0.2%
Specialty/sector 0.6% 0.7% (-0.1%)
Company stock 8.2% 8.7% (-0.5%)
Self-directed brokerage 2.0% 2.1% (-0.1%)
Equity 68.6% 65.4% 2.8%
Fixed income 31.4% 34.6% (-2.8%)

 

Index statistics

  2017
Total transfers as percentage of starting balance 1.45%
# Fixed days 132(53%)
# Equity days 119(47%)
# Above normal days 13

 

The following table shows the returns of major market indices for the year ending December 31, 2017:

Indices returns

  2017
Bloomberg Barclays Capital U.S. Aggregate Bond Index 3.5%
S&P 500 Index 21.8%
Russell 2000 Index 14.7%
MSCI All Country World ex-U.S.A. Index (net) 27.2%

 

Members of the media: please contact MacKenzie Lucas for questions about the Alight Solutions 401(k) Index™.

Learn more about the Alight Solutions 401(k) Index here.

  1. 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 Alight Solutions 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.
  2. Target date funds also include the amounts in target risk funds for companies who do not have target date funds. The amount in the target risk funds is less than 10% of the total.

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