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™ rebounded from first quarter losses, returning a reasonable 1.76% in the second quarter. The DC Index’s second-quarter performance outpaced the 1.11% gain of the Age 45 Target Date Fund (TDF). TDFs suffered from their higher relative allocation to non-U.S. equity (the MSCI ACWI ex USA Index dropped -2.61%) and emerging markets (the MSCI Emerging Markets Index plunged -7.96%). The average DC plan has a 5.6% allocation to non-U.S. equity and emerging markets, while the Age 45 Target Date Fund has an allocation of 26.5%.

Since inception, the DC Index’s annual return of 6.18% has trailed the Age 45 Target Date Fund by 70 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.

Mega plans have driven down their fees to an average of 33 basis points, as a result of their scale and ability to invest in institutionally structured vehicles, while smaller plans pay progressively more.

Growth Sources

Growth Fueled by Markets

DC plan balances grew by 1.88%, driven primarily by market performance. For the quarter, inflows (participant and plan sponsor contributions) accounted for only 12 basis points of the total growth. Since inception, plan sponsor and participant contributions have more significantly impacted balances and are responsible for approximately one-fourth of the annualized 8.12% total growth in balances.

Net Cash Flow Analysis

Target Date Funds Dominate Inflows

Target date funds attracted the majority of assets during the quarter, absorbing approximately 92 cents of every dollar that flowed into DC funds.

Several DC investments saw material net outflows, including U.S. equities (large and small/mid cap), U.S./global balanced, U.S. fixed income, non-U.S. equities, stable value, and company stock.

Turnover

Turnover Activity Drops in First Quarter

Second quarter turnover (i.e., net transfer activity levels within DC plans) in the DC Index increased slightly from last quarter to 0.35%, but remained well below the historical average at 0.62%.

Equity Allocation

Modest Increase in Equity Exposure

The Callan DC Index’s overall equity allocation ended the quarter at 70%. 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

The second quarter of 2018 marked another all-time high for target date funds’ share of DC assets, expanding to 32.5%. The allocation to U.S. large cap equity grew from last quarter. U.S. large cap continues to be the second highest allocation, at 24.1%.

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.

While TDFs have a larger overall weight within the Index, they remain less prevalent than the next largest plan holding, U.S. large cap equity. When TDFs are held within a DC plan (92% of plans offer them), they account for 35% of plan assets. Meanwhile, U.S. large cap equity funds account for 24% of plan assets, even though they are offered by 100% of DC plans.

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