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

Strong Start to the Year

After a rough finish to 2018, the Callan DC Index™ rebounded in the first quarter of 2019, gaining 9.6%. The Age 45 Target Date Fund posted even stronger results, gaining 11.2%. This outperformance is largely attributable to the Age 45 TDF’s higher equity allocation (78% vs. 69%). While the larger equity allocation hurt performance for the TDF in 2018, it has contributed to higher returns since inception (6.7% vs. 6.0%).

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. Fee data is updated annually during the fall.

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

Balances See Sizable Gains

Strong investment returns, coupled with positive flows, led to a sizable growth in balances for the quarter. The growth in flows marked a reversal from two consecutive quarters of negative flows, while investment gains made heavy contributions, helping to recover from a rocky fourth quarter (-9.7%). The 9.8% total gain in market value for the quarter marked the highest since the first quarter of 2012 (9.9%). Net flows will continue to provide a critical measure for how effective plans are at retaining the balances of retiring workers.

Net Cash Flow Analysis

Back to Normal?

After an aberration in the fourth quarter, target date funds once again saw the largest inflows in the first quarter. Moreover, stable value experienced relatively large outflows after having the largest inflows the previous quarter. Despite a strong performance by equity in the first quarter, both U.S. and non-U.S. equity saw large outflows at the same time that U.S. fixed and money market experienced relatively large inflows, perhaps indicating a general shift toward safer securities within the core lineup.

Turnover

Net Transfers Increase in the First Quarter

First quarter turnover (i.e., net transfer activity levels within DC plans) in the DC Index increased slightly to 0.48% from the previous quarter’s 0.41%. Turnover has now risen for two consecutive quarters but still sits well below the historical average (0.61%).

Equity Allocation

Exposure Rises Again

After equity markets rebounded in the first quarter, the overall share of equity rose slightly to 69.5% from 68.8% the previous quarter. The current equity allocation is now approximately 1.7 percentage points above the Index’s historical average (67.8%).

Asset Allocation

TDFs Decline in 1st Quarter

Target date funds ended the quarter with 30% of assets, down from 33% the previous quarter. Among those classes that increased, U.S. large cap (25%) and U.S./global balanced (7%) were up roughly 1 percentage point.

Prevalence of Asset Class

Stable Value Continues Steady Ascension

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

Stable value’s prevalence within DC plans rose for the sixth consecutive quarter and is now at 76%, up approximately 4 percentage points from a year ago. This could be in response to the premium afforded to stable value relative to money market options. Additionally, more plans are now offering emerging market equity (18%) as an investment option compared to the previous quarter.

The presence of company stock (21%) continues to decline, alongside asset classes such as global equity (16%).

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