Since stable value funds invest in intermediate-term bonds and money market funds favor short-term bonds, the recent rise in short-term interest rates has been creating some challenges for stable value funds.
Experts say, however, that this condition is cyclical, and stable value funds still hold great appeal for retirement plan sponsors and participants.
“The interest rate environment over the past 12 months has been very challenging for stable value funds,” says Jonathan Kreider, vice president of investment products at Great-West Financial in Greenwood Village, Colorado. “One headwind has been the general flattening of the yield curve, which is cyclical.”
Another headwind, according to Krieder, is “more structural.” He says the long-running bull market in equities has left investors in general less focused on defensive funds and capital preservation.
“All bull markets come to an end,” he warns.