Stable value generally has the objective of preserving a participant’s invested capital (or principal) while providing liquidity and steady, positive returns. Stable value is designed to provide gross returns similar to short- to intermediate- bonds without the daily mark-to-market volatility. The investment contracts smooth the market value returns earned on the bond portfolios, providing a consistent contract value return, which is what plan participant’s experience. The table below illustrates the relative risk (as measured by standard deviation) and gross returns of stable value, money market, intermediate bonds, and stocks over time. The returns for stable value are similar to intermediate bonds but the volatility is the lowest of all asset classes shown. This results in a very attractive risk/return profile highlighting that stable value has historically been successful delivering on its objectives.
Shown another way, the chart below illustrates that over the long term the growth of $1 invested in the stable value is comparable to the Barclays Intermediate Government/Credit Bond Index. The chart also illustrates that stable value returns significantly outpaced money market returns.
The volatility of the stable value monthly returns is similar to that of money markets, and far less variable than that of the Barclays Intermediate Government/Credit Bond Index.
Simulation of contract value returns in a hypothetical fund holding intermediate bonds and stable value wrap contracts, with crediting interest rates reset monthly using the industry accepted crediting rate formula. The bond returns incorporated into the simulation are monthly market value returns from the Barclays Intermediate Government/Credit Bond Index, with gains/losses reflected in future crediting rates by amortizing market-vs.-contract values over intermediate bond index durations. This simulation incorporates no ongoing cash flows into or out of the fund. Returns illustrated are gross before any fees.
MONEY MARKET FUNDS
Simulation of money market returns from the iMoneyNet MFR Money Funds Index. Returns illustrated are gross before any fees.
Simulation of market value bond fund returns from the Barclays Intermediate Government/Credit Bond Index. Returns illustrated are gross before any fees.
S&P 500 Index with dividends reinvested: a widely used barometer of U.S. stock market performance; as a market-weighted index of leading companies in leading industries, it is dominated by large capitalization companies. Returns illustrated are gross before any fees.