The Callan DC Index™

Performance, asset allocation, and cash flows of over 90 large defined contribution plans representing approximately $150 billion in assets are tracked in the Callan DC Index™.

Quarterly Performance

DC Index Performance Benefits From Lack of Non-U.S. Equity Diversification

The Callan DC Index™ accelerated gains in the third quarter, posting a respectable 3.65% return. The DC Index’s performance outpaced the 3.53% gain of the Age 45 Target Date Fund (TDF). Some of this outperformance can be explained by the higher home country bias of the DC Index. The all-cap Russell 3000 Index, reflecting U.S. stocks, returned 7.12% while the broad MSCI ACWI-ex USA Index returned 0.71% for the quarter. The average DC plan has a 5.3% allocation to non-U.S. equity and emerging markets, while the Age 45 Target Date Fund has an allocation of 25.9%.

While the DC Index has outpaced the Age 45 TDF this quarter and for the year to date, since inception the DC Index’s annual return of 6.36% has trailed the Age 45 TDF by 65 basis points.

New Feature: Management Fee Data

The DC Fee Analysis chart shows the average total investment management fee by plan size, as well as the active and passive exposures. Fees for each fund (including mutual funds, collective trusts, and separate accounts), within a plan are asset-weighted to determine the average total fee. This fee will be updated annually.

Fees decreased across all plan sizes. This was driven by a combination of increased use of passive mandates as well as lower breakpoints and new lower fee vehicles and share classes for active options.

Growth Sources

Outflows: Is this the beginning?

DC plan balances grew by 3.14%, driven completely by market performance. For the first time since the third quarter of 2016, flows into the DC Index were negative. With aging demographics and those older participants typically having the largest balances, it remains an open question whether outflows become the norm.

Net Cash Flow Analysis

Target Date Funds Dominate Inflows

As usual, target date funds attracted the majority of assets during the quarter, absorbing approximately 64 cents of every dollar that flowed into DC funds.

Several DC investments saw material net outflows, including U.S. large cap, U.S./global balanced, non-U.S. equities, and stable value. On the other side of the ledger, small/mid-cap equity and money market saw sizable inflows.

Turnover

Turnover Falls in the Third Quarter

Third quarter turnover (i.e., net transfer activity levels within DC plans) in the DC Index decreased to 0.13% from a level of 0.35% the previous quarter. It remains well below the historical average at 0.61%.

Equity Allocation

Modest Increase in Equity Exposure

The Callan DC Index’s overall equity allocation ticked up slightly, ending the quarter at 71%. Overall equity allocation has remained fairly static over the past few quarters, modestly above the Index’s historical average (68%).

Asset Allocation

TDFs Continue to Grow

Target date funds maintained their lead with the largest share of DC Index assets (31.7%).

Prevalence of Asset Class

TDF Allocations Dominate

In the prevalence of funds table, the green bars indicate the prevalence of asset classes in DC plans and the blue bars measure the average allocation to that particular asset class when offered as an option.

The share of plans offering a brokerage window increased from 34% a year ago to 42% in the recent third quarter. Within capital preservation, the share of plans offering a money market option dropped from 51% to 43% while stable value is now offered in 73% of plans versus 69% a year ago.

Questions on the Callan DC Index? Contact Greg Ungerman, DC Practice Leader, ungerman@callan.com