Defined contribution plans increasingly are turning to global equity funds as an investment option, while a relative handful are starting to adopt enhanced indexed equity options.
Roughly 14% of corporate defined contribution plans offer a global equity fund, up from 12% a year ago; according to data from Hewitt Associates LLC, Lincolnshire, Ill. Less than 1% offer an enhanced indexing option.
The $24 billion 401(k) plan sponsored by General Motors Corp., Detroit, and the $1.5 billion 401(k) plan of Continental Airlines Inc., Houston, are among those with dedicated global equity funds.
Consultants say that plan executives are looking at global funds to diversify more than ever in light of the struggling U.S. capital markets.
Pamela Hess, defined contribution practice leader for Hewitt, said that while international options are extremely prevalent in DC plans, global funds are just starting to gain traction.
“What we've seen is the rationalization of the fund lineup being kept simple, but that said, there's a growing awareness that the markets are global and investing could go beyond the U.S.,” said Ms. Hess. Global equity funds also offer the portfolio manager more flexibility to invest opportunistically.
Participants' use of global equity funds is good but will improve with more investment education and communication, she said. Among plans that offer global equity, 6% of plan assets are invested in that option.
But Joseph Masterson, senior vice president at Diversified Investment Advisors Inc., Purchase, N.Y., said he sees little use for global equity in DC plans. “Out of 1,500 clients, less than 1% (of plans) have a global fund,” said Mr. Masterson.