In a period when equities performed better than other asset classes, defined contribution (DC) retirement plan participants reduced holdings in U.S. stocks and increased investment in low-yielding fixed income assets in 2012, according to a new tracking tool launched by the Defined Contribution Solutions group at Northern Trust.
Created to serve as a barometer for DC participant asset flows, Northern Trust's "Defined Contribution Tracker" analyzes data from a universe of 85 retirement plans in the United States with daily valuation, representing approximately 1.5 million participants and $190 billion in market value, a subset of the total DC assets managed or serviced by Northern Trust.
In 2012, the tracker shows, participants lightened up on U.S. equity investments even as the Russell 3000 Index of U.S. stocks gained 16.4 percent for the year. U.S equities remained the largest asset class at 31.1 percent of holdings, but fixed income saw inflows of 9.2 percent for the year despite lower yields, as DC investors looked for safe havens from volatility and uncertainty in the equity markets.
"Our tracker information, combined with market performance data, reinforces why it is important that DC participants stay the course to meet their long-term investment goals," said Jim Danaher, managing director of Defined Contribution Solutions at Northern Trust. "At the same time, we can see that more DC investors are participating in positive trends such as reducing their 'home country bias' by diversifying into international equities, and increasing allocations to target retirement date funds."
Target retirement date funds dominated asset inflows in the DC plans tracked by Northern Trust, growing from 11.9 percent to 14.6 percent of participant allocations during 2012. International equity, meanwhile, grew from 5.9 percent to 7.6 percent of allocations in the tracker universe.
"As the preferred qualified default investment of most DC plans, target retirement date funds have benefited from the increased adoption of auto-enrollment and other automated features, and we anticipate participant outcomes will show potential improvement through the use of these professionally managed investment solutions," said Susan Czochara, Senior Product Manager in Defined Contribution Solutions. "Investors are also taking advantage of the expanding investment universe through exposure to broader international equity benchmarks that incorporate the full ex-U.S. global equity opportunity set, further diversifying their sources of risk and return."
The Defined Contributions Tracker will be published annually using year-end data aggregated from DC retirement plans with daily valued assets under custody at Northern Trust. More information on the index methodology can be found at www.northerntrust.com/dcsolutions.
"The tracker was designed to provide corporate retirement plans with a peer comparison and some sense of how DC plan participants are reacting to market events," said David W. Fox Jr., head of Corporate & Institutional Services in the Americas for Northern Trust. "We are excited about the potential insights that we will be able to gather for this important client segment."
Northern Trust has approximately $214 billion in DC assets under custody. Its global custody unit works closely with the asset management team to provide comprehensive integrated solutions for DC plans, including daily valuation, multi-manager unitization, Defined Benefit-DC integration, performance measurement and cross-border pooling.
Asset Management at Northern Trust begins with listening and leads to answers beyond the expected for our clients. The multi-asset class investment management business is comprised of Northern Trust Investments, Inc., Northern Trust Global Investments Limited, Northern Trust Global Investments Japan, K.K., the investment advisor division of The Northern Trust Company and The Northern Trust Company of Connecticut and its subsidiaries which offer investment products and services to personal and institutional markets.
About Northern Trust
Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of investment management, asset and fund administration, banking solutions and fiduciary services for corporations, institutions and affluent individuals worldwide. Northern Trust, a financial holding company based in Chicago, has offices in 18 U.S. states and 17 international locations in North America, Europe, the Middle East and the Asia-Pacific region. As of March 31, 2013, Northern Trust had assets under custody of US$5.0 trillion, and assets under investment management of US$810.2 billion. For more than 120 years, Northern Trust has earned distinction as an industry leader in combining exceptional service and expertise with innovative products and technology. For more information, visit www.northerntrust.com or follow us on Twitter @NorthernTrust.