Defined contribution participants decreased their holdings in domestic equity in 2012 and increased fixed-income holdings, despite tepid bond returns and the Russell 3000 returning 16.4% for the year, according to a new report from Northern Trust.
Domestic equity overall remained the largest asset class at about 31.1%, nearly flat from the end of 2011 due to investment gains, but large-, mid- and small-cap strategies all saw outflows for the year. Small-cap strategies experienced nearly 5% in outflows while large- and midcaps had less than 1% in outflows.
Susan Czochara, senior vice president and senior product manager in defined contribution solutions, said it was equally surprising to see equity flows decrease as it was for fixed income to have inflows of 9.17% for the year. The overall fixed-income allocation increased to 10.63% from 10.17%.
Not surprisingly, target-date funds dominated asset inflows, growing to a total allocation of 14.62% from 11.87% at the end of 2011. International equity also received a nice boost with inflows of 4.67%, which boosted its overall allocation to 7.62% from 5.88%.
“DC plan sponsors are embracing strategies that are more global in nature,” Ms. Czochara said in a telephone interview. She added that plans are moving to all-country, streamlined international equity options.
“Another thing we were pleased to see is that (allocations to) company stock came down … we hope that trend continues,” Ms. Czochara said. Company stock had outflows of 11.22% as the total allocation decreased to 9.07% at year-end from 10.99%.
The inaugural report, called the Defined Contribution Tracker, analyzed data from 85 retirement plans for which Northern Trust provides custody services, with an aggregate $190 billion in assets.