Continuing education about long-term investing likely contributed to participants' behavior, executives said.
Record keepers and researchers say the recent stock market volatility prompted an increase in inquiries from defined contribution plan participants, but trading activity didn't always fit what might be considered a typical response of moving some equity holdings to fixed income. For example, trading activity among participants in DC plan clients of Wells Fargo Institutional Retirement Plans and Trust, Minneapolis, showed money moving from equities to balanced funds and target-date funds on Feb. 5, when the Dow Jones industrial average fell 1,175 points, and on Feb. 6, when the index gained 567 points.
"It was surprising to us," said Jeffrey Kletti, head of investments.
On the other hand, Alight Solutions reported that overall trading on Feb. 5-6 featured shifts from equities to fixed-income investments such as stable value, bond funds and money market funds. "It was a fairly standard response" to when stocks fall sharply, said Robert Austin, the Charlotte, N.C.-based director of research.
Some DC plan sponsors received few calls from participants. Plan executives speculated — as did record keepers and researchers — that activity during the latest stock market gyrations might have been muted because so many participants now invest in target-date funds. These investments, they added, might give participants a greater sense of comfort or security during stock market turmoil.
Continuing education about long-term investing likely contributed to participants' behavior as well, the executives said.
On Feb. 5-6, Wells Fargo detected a "more than normal" outflow from equities among participants in its record-keeping client plans. "But it was basically matched by an inflow to balanced funds or target-date funds," Mr. Kletti said.
He speculated participants "realize they needed to stay invested for the long run," adding this response was "significantly different" from expected responses to a big stock drop. In the past, when participants moved out of equities, 80% of the money would go to cash and 20% would go to bond funds, he said.
During the first nine days in February, web-based and call-center transactions were 110% higher than for the same period in 2017, according to Wells Fargo internal research.
Web-based inquiries about accounts were up 210% vs. the year-earlier period, Wells Fargo reported. However, the number of distinct users was up only 30%, indicating some participants checked their accounts often. During this period, the number of distinct users represented approximately 20% of participants in Wells Fargo record-kept plans. Participants are quick to trade when markets go down and slower to trade when they go up, said Mr. Austin, of Alight Solutions. His firm publishes a 401(k) index that tracks daily trading by more than 1 million participants in plans that have more than $150 billion in aggregate assets.
Trading volume on Feb. 5 was the highest since Aug. 8, 2011, when the Dow lost 635 points. That falloff was linked to Standard & Poor's Corp. cutting the rating on U.S. sovereign debt to AA+ from AAA.
The Feb. 5 trading volume was about 12 times the normal daily trade, representing 0.176% of balances. "On an absolute basis, this is small," Mr. Austin said. "On a relative basis, Feb. 5 was a special day."
From Feb. 6 through Feb. 9, daily trading volume was two to five times normal. The trading represented a range of 0.027% to 0.084% of balances, according to Alight research. During the week of Feb. 5-9, each day, except for Feb. 7, showed money moving to fixed income from equity.
Ironically, Alight Solutions recently reported that trading volume in 2017 was the lowest since the firm launched its index 20 years ago.
Vanguard Group Inc., Malvern, Pa., reported 1% of households made trades in taxable and retirement accounts on Feb. 5. That was the third largest trading day among Vanguard investors since the firm began tracking such behavior in 2011. Still, only 0.3% of assets were traded on Feb. 5, the second biggest daily amount since 2011. Yet on Feb. 13, when the Dow gained 406 points, the daily trading was "the lowest activity of the year," despite continuing stock market volatility, said Jean A. Young, senior research analyst at Vanguard's Center for Investor Research.
Ms. Young said the annual percentage of participant-directed trading in 401(k) plans — which excludes participants using managed accounts — has declined partly because of target-date funds' popularity and participant education as well as periods of low volatility. In 2016, it was 8%, according to the latest Vanguard research. In 2007, it was 14%.
In its annual analysis of its 401(k) plan clients, Vanguard found that participants who invested all of their retirement money in a target-date fund or a balanced fund traded less frequently than participants investing in other options within their plans.
For the target-date group, 2% made trades in 2016 — the same percentage for each year going back to 2009, according to a survey report published last year. For the balanced fund group, 3% made trades in 2016. Since 2009, this group's annual trading percentage hovered between 2% and 3%.
However, the report said 12% of the other-options participants made trades in 2016. The trading percentage has swung between 12% and 14% since 2009.
Although participants in record-keeping client plans of Empower Retirement made more inquiries than normal during the week of Feb. 5-9, "we didn't see a recognizable trend in allocation to or from a particular strategy," said spokesman Stephen Gawlik.
"We believe a long-term investment mentality has taken hold among our participant base, for the most part," Mr. Gawlik, whose company is based in Greenwood Village, Colo., wrote in an email.
During the week, call-center volume was up 33% on Feb. 5 and 25% on Feb. 6; but the volume was normal for the rest of the week. Empower usually gets 22,000 calls per day.
"Among call types (during) this week, participants wishing to discuss investment selections were up 75% vs. a normal week," Mr. Gawlik added.
"Within the bucket of these investment calls, about one-third were in the allocation change category," he wrote. "This was about twice the level from an average day. The other two-thirds of these calls resulted in discussions with representatives where no action was taken."
Call volume was 57% greater than normal from Feb. 2 through Feb. 9 at the Ohio Public Employees Deferred Compensation Program, Columbus, said Keith Overly, executive director. The plan's assets were $13.5 billion at year-end 2017, rose to $14.1 billion in January and dropped to $13.4 billion by Feb. 9.
Mr. Overly attributed part of the higher call volume to the plan sending out annual statements just before stocks started bouncing around. Normally, the issuance of annual statements would provoke a 20% increase in calls, he said.
During that early February period, the plan recorded 1,500 transactions, double the normal amount. Mr. Overly said these exchanges were made by fewer than 1% of the plan's 200,000 participants."We weren't surprised," said Mr. Overly, adding most transactions represented shifts to fixed income from equity.
Other sponsors reported only few inquiries and little trading by participants.
"We have only had a couple of calls, and we have found that to be typical in similar situations in the past," said Cheri Klyn, director of shared services at Vermeer Corp., Pella, Iowa. "We do a lot of communication with our people, and they seem to take it in stride."
Ms. Klyn speculated that many participants exercised restraint because the stock market volatility coincided with on-site visits from members of Vermeer's investment adviser to discuss recent plan design and investment changes. "One-on-one communications are the best," she said.
When stocks sank sharply in the past, participants' trading activity "really didn't move," Ms. Klyn added. "We provide heavy education and communication on investing for the long term."
Robert Steyer is a reporter at InvestmentNews' sister publication Pensions & Investments.
