The size of defined contribution participant balances dropped 2.09% during the second quarter, as higher contributions couldn’t offset investment losses, according to the Callan DC Index from Callan Associates.
The average second-quarter investment loss was 2.56%, while contribution inflows from participants and sponsors rose 0.47%, according to the index’s quarterly report issued Thursday.
However, for the first half of 2012, the index registered a 7.65% gain in participants’ balances, thanks to a strong first quarter in terms of contributions and investments.
Although domestic large-cap stocks represent the largest allocation in the Callan universe at 24.3%, “this asset class also has the distinction of having experienced quarterly net outflows more often than any other major asset class outside of company stock,” the report said. When the index was created in 2006, domestic large-cap equities accounted for 32% of the allocation.
Target-date funds, with a second-quarter allocation of 14.4%, represented the second-largest allocation in the index.
Target-date funds had moved into second place in the first quarter of 2012, pushing past stable value, Lori Lucas, executive vice president and defined contribution practice leader at Callan Associates, said in an e-mail. Stable value now represents a 12.4% allocation in the Callan DC Index.
Target-date funds reported positive inflows during the second quarter, “as they have every quarter since the index’s inception,” the report said. “In fact, six out of every 10 dollars that moved within the index in the second quarter flowed into target-date funds. The tendency of these funds to attract monies even in down markets may be a reflection of participant inertia as much as actual confidence in these investments.”
The report said the overall portfolio turnover rate for the quarter was 0.43%, or about 60% of the typical turnover rate. “Transfer activity tends to tick up in periods of market strength or very prolonged periods of market weakness,” Ms. Lucas wrote. “In short periods of market weakness, there appears to be a ‘deer in the headlights effect,’ where transfer activity is below average.”
The Callan DC Index tracks 79 plans with aggregate assets exceeding $100 billion. Callan follows cash flows and performance of defined contribution plans, primarily 401(k) plans.