Stable value funds experienced a $49.7 billion increase in assets under management in Q1 20201, about a 6% increase in assets from Q4 2019. Since stable value products insulate participants from day-to-day market volatility, it was an obvious choice for investors given equity market (the VIX went above 80!) and fixed income market (liquidity challenges and multi-standard deviation spread widening) volatility. However, the Stable Value Investment Association (SVIA) says there are many more reasons beyond low volatility for plan sponsors and participants to consider stable value.
Participants invest in stable value as it provides a distinctive combination of benefits including principal preservation, consistent positive returns, and liquidity for participant benefit payments. Stable value returns are generally negatively correlated with equity investments, so it protects retirement savings when equity markets swoon from shocks like the coronavirus pandemic. Stable value returns are similar to intermediate term bonds – as bonds are the underlying strategies in stable value products, just without the volatility. And compared to money markets, stable value products have historically and are designed to outperform money markets given their longer duration.
For those investors who need to rely on their retirement savings in the near future, stable value is the only asset class that combines principal preservation, a steady positive rate of return, and liquidity. For those investors who are still building their savings nest egg, stable value provides good diversification to offset risks with equities.
For more information, see below.
1 SVIA Q1 2020 Survey