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Home > Library > Stable Times > Volume 3, Issue 1  The quarterly publication of the Stable Value Investment Association First Quarter 1999 • Volume 3 Issue 1 Highlights from SVIA's Second Annual Stable Value Funds Investment Policy SurveyBy Wayne Gates, General Director, Guaranteed & Stable Value Products, John Hancock The Stable Value Investment Association has completed its second, comprehensive, publicly available survey of stable value investment portfolios. The survey covers investment characteristics and placement activity of stable value portfolios for the calendar years ending 1996 and 1997. It included more than 60,000 plans with stable value assets of $164 billion and placements of $33 billion for 1997. Data was collected from four distinct segments within the stable value market:
Individually managed plans are
much larger, on average, than are plans within stable value pools and
commingled single issuer stable value funds. Whereas the average size
of the 350 individually managed stable value funds contained within the
survey was nearly $400 million, the average size of the stable value plans
assets of the nearly 60,000 plans investing in commingled funds (pools
and single issuers) was only slightly more than $0.75 million. The following
table summarizes the survey results by segment.
Summary Statistics by Manager Segment
1 Account assets only. Excludes the quality of the issuer's guarantee. The average portfolio blended rate ranged from 6.34% for the stable value pools to 7.17% for internally managed individual plans. The variation across segments is largely explained by average size, credit quality and portfolio duration. In addition, the relatively high average blended rate for the internally managed funds reflects the influence of several plans with quite long stable value portfolio durations that still maintain crediting rates well above 8 percent. Generally, the longer the portfolio duration and the lower the credit quality, the higher is the blended rate. In addition, with the exception of the single issuer segment, the blended rate appears to be positively correlated with the average size of the plan's stable value assets. For single issuers, this is not true, and may be related to several factors. First, the underlying quality of the assets backing the guarantee is single-A, on average. Second, these issuers manage the commingled funds to a longer investment duration. So, the quality and duration offset some of the effects of smaller size for the single issuers. Multi-Issuer Stable Value Portfolios Because single issuers manage their commingled stable value funds in a different fashion than individually managed stable value funds and pools, the portfolio mix for this segment is considered separately. The following table shows the mix of investments within individually managed stable value funds and stable value pooled funds. Multi-Issuer Portfolio Mix December 31, 1997 Percent of Portfolio
The survey demonstrates that there are a number of different ways to manage stable value funds effectively. While some funds invest entirely in traditional GICs, others have virtually none, with a preference for synthetic GICs only. External stable value managers use more buy-and-hold synthetics, while internal managers use more evergreen synthetics and separate accounts. From 1996 to 1997, traditional GICs continued to lose their share of the multi-issuer market, declining from about 47 percent to about 37 percent. This decline resulted from continuing increase in the use of synthetics, which grew from about 38 percent to 49.5 percent of multi-issuer portfolios. (Including the single-issuer segment, which is primarily GIC products. GICs had about 48 percent of the total market in 1997.) Most likely a reflection of the decline in the share of traditional GICs, entirely non-participating and non-experience rated investments fell from roughly 56 percent to 45 percent from 1996 to 1997. On the other hand, the share of entirely participating and experience rated investments rose to 47 percent from 31 percent during that time. While all three segments of the multi-issuer group have increased this risk within their portfolios, the largest changes have occurred in the externally managed portfolios and pools. In-house managers have a lower portion of their portfolios in participating contracts, perhaps because of the longer durations of their portfolios. Single Issuer Portfolio Mix Within the single issuer segment, stable value funds have only one guarantee provider and often only one contract. SVIA surveyed the composition of the investment portfolio backing that contract. The following table provides the portfolio composition for that account. Single Issuer Portfolio Mix December 31, 1997
This segment represented almost $30 billion in stable value assets in 55,000 plans. One-third of these plans are class year plans, but such plans represent about three-quarters of the segment when weighted by assets. Almost one-third limit the volume of annual participant book value withdrawals from the stable value fund. Virtually all (99.5%) of the stable value assets are invested in general account contracts. Roughly one-half of stable value assets are both non-participating and non-experience rated, while the remaining one-half are entirely participating and experience rated.
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