401(k) Index & Observations Monthly Details: December 2016
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December 2016 Review
December was a light trading month for investors in defined contribution plans according to the Aon Hewitt 401(k) IndexTM —a sharp contrast to November which saw the highest trading activity in over three years. There were zero above-normal1 trading days in December. On average, 0.017% of balances traded each day and when participants made trades, they favored equities over fixed income funds.
Asset Classes with Most Trading Inflows in December
|
Percent of Inflows |
Index Dollar Value ($ mil) |
| Small U.S. equity funds |
34% |
$130 |
| Large U.S. equity funds |
27% |
$102 |
| Mid U.S. equity funds |
19% |
$71 |
Asset Classes with Most Trading Outflows in December
|
Percent of Outflows |
Index Dollar Value ($ mil) |
| Company stock funds |
43% |
$163 |
| Bond funds |
30% |
$114 |
| Stable value funds |
13% |
$49 |
After combining contributions, trades, and market activity in participants’ accounts, the percentage of balances in equities was 65.4% at the end of December, up from 65.0% at the end of November. New contributions continue to favor stocks, but at a lower rate than in the past. In December, 65.2% of employee contributions were into equities—a decrease from 65.7% in November.
Asset Classes with Most Contributions in December
|
Percent of Contributions |
Index Dollar Value ($ mil) |
| Target-date2 funds |
43% |
$451 |
| Large U.S. equity funds |
19% |
$201 |
Asset Classes with Largest Percentage of Total Balance at end of December
|
Percent of Balance |
Index Dollar Value ($ mil) |
| Target-date2 funds |
24% |
$42,348 |
| Large U.S. equity funds |
23% |
$39,589 |
| Stable value funds |
13% |
$22,657 |
Fourth Quarter 2016 Review
There were ten days of above-normal trading activity in the fourth quarter of 2016–the highest since the second quarter of 2015. The quarter began with relatively normal activity then spiked in early November, leading up to the U.S. Presidential election. December closed the quarter with light trading activity. In the fourth quarter, 51% of trades favored fixed income over equities with stable value, small U.S. equity, and money market funds receiving the majority of the inflows and company stock, bond funds, and specialty/sector funds having the most outflows.
Asset Classes with Most Trading Inflows in Q4 2016
|
Percent of Inflows |
Index Dollar Value ($ mil) |
| Stable value funds |
33% |
$301 |
| Small U.S. equity funds |
20% |
$184 |
| Money market funds |
17% |
$157 |
Asset Classes with Most Trading Outflows in Q4 2016
|
Percentage of Outflows |
Index Dollar Value ($ mil) |
| Company stock |
71% |
$648 |
| Bond funds |
16% |
$141 |
| Specialty/sector funds |
9% |
$81 |
The following table shows Aon Hewitt 401(k) IndexTM statistics for the period ending December 31, 2016:
Index Statistics
|
December |
Q4 2016 |
2016 YTD |
| Total Transfers as Percent of Starting Balance |
0.22% |
0.53% |
2.13% |
| # of Fixed Income Days |
8 (38%) |
32 (51%) |
168 (67%) |
| # of Equity Days |
13 (62%) |
31 (49%) |
84 (33%) |
| # of Above-Normal1 Days |
0 |
10 |
28 |
Market Observations
December
The month was steady for markets as equities saw positive gains and fixed income remained level. U.S. Large-Cap equities (represented by the S&P 500 Index) increased 2% while U.S. Small-Cap equities (represented by the Russell 2000 Index) and international equities (represented by the MSCI All Country World ex-USA Index) increased nearly 3%. U.S. bonds (represented by the Bloomberg Barclays U.S. Aggregate Index) increased by only 0.1% during December.
Fourth Quarter
U.S. equity returns were positive while fixed income and international equities were negative. U.S. Large-Cap equities (represented by the S&P 500 Index) increased nearly 4% and U.S. Small-Cap equities (represented by the Russell 2000 Index) increased nearly 9%. U.S. bonds (represented by the Bloomberg Barclays U.S. Aggregate Index) decreased 3% while international equities (represented by the MSCI All Country World ex-USA Index) fell by just over 1%. The following table shows the returns of major market indices for periods ending December 31, 2016:
Indices Returns
|
December |
4Q 2016 |
2016 YTD |
| Bloomberg Barclays Capital U.S. Aggregate Bond Index |
0.1% |
-3.0% |
2.7% |
| S&P 500 Index |
2.0% |
3.8% |
12.0% |
| Russell 2000 Index |
2.8% |
8.8% |
21.3% |
| MSCI All Country World ex-U.S. Index (net) |
2.6% |
-1.3% |
4.5 |
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 Aon Hewitt 401(k) IndexTM 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 2 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.