401(k) Equity Exposure Hits 20-Year High

May 12, 2021

The rising stock market coupled with slow and steady trades into equities have brought 401(k) investors to their highest level of equity exposure since 2001, according to the latest Alight Solutions 401(k) Index. 

Moreover, even though April had no days of above-normal activity, the month saw nearly all days have net trading activity favoring equities over fixed income. Average net trading activity was 0.013% of 401(k) balances—the lowest value since December 2019. 

In addition, only four days favored fixed income funds, while 17 days favored equity funds during April. This appears to be a near reversal from 2020, as most trading days favored transfers to fixed income. The year-to-date data shows that only 22 days (27%) have favored fixed income, but 60 days (73%) have favored equity.  

Remarkably, there was only one above-normal trading day in the first four months of 2021. In contrast, 2020 had 47 days of days of above-normal trading activity, with 26 of them occurring during a six-week stretch from the end of February to early April when the world was coming to grips with the COVID-19 pandemic.

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 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.

Inflows and Outflows 

Asset classes with the most trading inflows during the month of April went mainly to large U.S. equities, with 44% of the inflows for an index value of $184 million, followed by target date funds (17% at $171 million) and international equities (16% at $68 million).  

As for trading outflows, stable value funds had the most in April at 48% for an index value of $204 million, followed by bond funds (24% at $106 million) and money market funds (13% at $53 million).  

After reflecting market movements and trading activity, average asset allocation in equities stood at 69.8% at the end of April—which Alight notes is the highest value since June 2001. New contributions to equities remained unchanged from March at 69.9%.

Market Performance

The 2021 year-to-date data for common indices shows that U.S. bonds (represented by the Bloomberg Barclays U.S. Aggregate Index) are down 2.6%; large U.S. equities (represented by the S&P 500 Index) are up 11.8%; small U.S. equities (represented by the Russell 2000 Index) are up 15.1%; and international equities (represented by the MSCI All Country World ex-U.S. Index) were up 6.5%.