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SVIA Stable Value Funds' Investment and Policy Survey Hits Seventh Year Finds $321 Billion Invested in Stable Value

SVIA has conducted the Stable Value Funds' Investment and Policy Survey providing comprehensive information about the assets and portfolios of Stable Value Funds offered in defined contribution plans for seven years. In this seventh year, covering assets as of December 31, 2002, Stable Value Funds reached an asset level of $321 billion, which translates to a 33 percent allocation by 401(k) investors to Stable Value for those 401(k) plans covered in the survey.

SV Asset Chart & % Allocation to SV in DC Plans Chart

% Allocated to Stable Value Funds in Defined Contribution Plans

Stable Value assets have more than doubled for the plans covered by the survey since 1996 when the survey began. Increases in survey participation (more plans are covered), interest income, participant contributions or deposits, and transferred assets explain the growth. In fact, over the past seven years, Stable Value assets have gradually increased except for one year. In 1999, money flowed into Stable Value as a parking place for Y2K. The technology glitches and meltdown forecasted did not happen when we entered the 2000 New Year and money flowed steadily out of Stable Value during the first quarter of 2000, causing Stable Value assets to decline by three percent. Despite the 2000 blimp, Stable Value assets have demonstrated steady growth from a low of seven percent in 1999 to a high of 23 percent in 1996 and 2002.

Growth of SV Assets Chart

What explains this steady growth of Stable Value? Perhaps a confluence of events: an aging workforce, educational initiatives, and market forces. Since the bear market introduced itself towards the end of 2000, it could be something as simple as return. Stable Value has consistently beat most stocks over the past three years with returns ranging between 6.59 percent, 6.44 percent, 5.84 percent, respectively for 2000, 2001 and 2002.

SV Average Annual Return Chart

Annual returns are only part of the story. As a conservative investment, Stable Value does not have the same risks as headline attracting equities. Stable Value combines the best features of money markets-safety and liquidity, with that of bond funds-higher returns. However, Stable Value removes the less desirable traits from these marriage partners: it drops the low returns that money markets are earning and it eliminates the volatility of bonds-the possibility that bonds may go down in value.

During this seven-year timeframe, Stable Value portfolios have experienced changes relative to duration, credit and portfolio composition. Depending on how the fund is operated (life insurance, pool, internally or externally managed), in most cases duration has been shortened.

SV Fund Duration Chart

SVIA changed its measurement of credit quality in 2001, so comparisons are unavailable except for 2001 and 2002. The survey found slight changes in credit quality between the two years.

SV Fund Credit Quality Chart

However, SVIA does have comparable data for a high altitude look at portfolio assets. Over the past seven-years, portfolios have seen growth in wrapped assets and a decrease in the Guaranteed Investment Contracts (GICs) and Bank Interest Contracts (BICs).

SV Portfolio Allocation Chart

Noting the movement towards wrapped assets in Stable Value portfolios, SVIA asked for information on the underlying assets in these wraps. The following chart shows the assets held in wrapped asset portfolios for 2001 and 2002.

SV Wrapped Assets Chart

The survey also collected data on risk-participation and found that survey participants used a variety of wraps. On an aggregate basis, use of non-participating wraps has declined while other types of wraps have grown.

SV Risk Participation of Wraps Chart

To learn more about the Seventh Annual SVIA Stable Value Investment and Policy Survey, go to Members' Only at www.stablevalue.org. Remember, use of the survey is a benefit of SVIA membership. Many thanks go out to the membership for their continued participation in the annual survey. Special recognition and many thanks to the Data and Research Committee's Survey Subcommittee for their hard work in compiling, vetting and analyzing the survey.

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