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Survey Demonstrates Consistent Performance of Stable Value

SVIA’s Tenth Annual Investment and Policy Survey on Stable Value Funds demonstrated the consistent performance that stable value funds provide. The survey, which covered 108,842 defined contribution plans with more than $397 billion in stable value assets, found that the average/median return of the 12 months ending December 31, 2005 was 4.75 percent, which compares favorably to the return on the Lehman Intermediate Aggregate Index of 2.02 percent and money market returns of 3.04 percent for the same period. Stable value returns were up from 4.53 percent in 2004.

Focusing only on yearly returns hides how these returns are delivered. The following graph is a snapshot that shows how stable value consistently delivered positive monthly returns compared to the Lehman Intermediate Aggregate Index and the money market index over the past two years. As the graph shows, bonds had greater volatility over the two-year period and experienced negative returns for five months in 2005 and three months in 2004.

Taking a longer perspective, the following chart looks at monthly returns from January 31, 1990 through July 31, 2006 and shows how stable value removes the volatility associated with bonds while providing similar returns. Stable value produces bond-like returns with exceptionally low levels of volatility by investing in a wrapped portfolio of well-diversified bonds. The wrap protects the underlying portfolio from changes in value tied to interest rate fluctuations.

The survey found that participant contribution levels declined in 2005 to 12 percent, compared to 15 percent in 2004. Withdrawals were almost unchanged at 12.6 percent.

The distribution of assets among management segments changed slightly. External management represented 42 percent; pooled funds, 32 percent; life company full service, 23 percent; and in-house, 3 percent. The distribution for 2004 was as follows: external management, 45 percent; pool funds, 28 percent; life company full service, 19 percent; and in-house, 8 percent.

Stable value portfolios underwent modest changes from 2004 to 2005. Wrapped portfolios represented the bulk of stable value assets for both years: 68 percent in 2005, compared to 70 percent in 2004. Guaranteed Investment Contracts (GICS) garnered 30 percent in 2005 and 27 percent in 2004. Cash comprised the remaining assets, representing 2 percent in 2005, compared to 3 percent in 2005. The following chart highlights how wrapped portfolios in 2005 were invested.

The duration of stable value portfolios also changed during 2005, to 3.28 years from 3 years in 2004. However, average credit quality for stable value portfolios remained high and virtually unchanged at AA+/Aa1 or better for both Moody’s and Standard and Poor’s, respectively.

To learn more about SVIA’s Tenth Annual Policy and Investment Survey and the individual market segments, visit SVIA’s website (www.stablevalue.org). The survey, which is a benefit of Association membership, is in Members’ Only.

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