Q2 Trading Light, Equity Exposure Still at 20-Year High

July 15, 2021

Despite rising fears of inflation and market volatility, 401(k) participants were light traders and content to watch their balances rise, amid the strong market performance for the first half of 2021. 

According to the Second Quarter 2021 Observations for the Alight Solutions 401(k) Index, trading activity was remarkably light in the second quarter. In fact, net trades for the quarter amounted to 0.16% of balances—the lowest quarterly figure in the almost 25-year history of the 401(k) Index, the firm reports. Alight tracks the 401(k) trading activity of over two million people with more than $200 billion in collective assets. 

The previous quarterly low was 0.30%, which occurred during the second quarter of 1998. As a general comparison, from the first quarter of 1998 through the first quarter of 2021, the average quarterly net trading activity was 0.88%. In addition, there was only one day of above-normal activity and only two for the first half of 2021. Consider that at this point in 2020, there were already 35 above-normal trading days. 

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.

Equities in Favor

Additional observations show that traders continue to favor equities. According to the Index, 37 days—or 59% of trading days for the year—had net trading dollars moving to equities, while 26 days (41%) favored fixed income. This is almost the mirror opposite of the trading days in 2020, where traders largely favored fixed income over equity. 

Meanwhile, Alight’s observations for June show that after reflecting market movements and trading activity, average asset allocation in equities increased from 69.9% in May, which was the highest in 20 years, to 70.2% in June—now the highest since May 2001. In addition, new contributions to equities remained at 69.2%.

Inflows and Outflows

Leading the pack with asset classes with the most trading inflows during the second quarter went to International, with 36% of inflows for an index dollar value of $153 million. Specialty/sector classes and target date funds tied as the net most trading inflows, with each receiving 18% of the flows for an index value of $75 million. 

In contrast, stable value funds experienced the largest percentage of trading outflows, at 36% for an index value of $151 million, followed closely behind by company stock at 35% for an index value of $146 million. Trailing stable value and company stock was money market at 11% or $46 million in value. 

All the common indices that the Index tracks had positive returns for the second quarter, with the S&P 500 leading the way at 8.55%, following by the MSCI All Country World ex-U.S. Index at 5.48%, the Russell 2000 Index at 4.29% and the Bloomberg Barclays U.S. Aggregate Index at 1.83%.