Stable Value Funds Deliver for Investors in 2011

By Randy Myers

Investors want two things from their stable value funds: capital preservation and a steady, predictable return on their investment. In 2011, stable value funds continued to deliver those benefits, SVIA President Gina Mitchell told participants at the organization’s Fall Forum, held in November in Washington, D.C.

Acknowledging that stable value investors value the journey as much as the destination, Mitchell noted that stable value funds in 2011 continued to deliver returns in line with those available from intermediate-term bond funds, but with less volatility.

From the end of 1988 through the third quarter of 2011, Mitchell noted that a model stable value account would have generated an average annual return of 4.24 percent, nearly in line with the 4.49 percent average annual return of the Barclays Intermediate Government/Credit bond index. By contrast, money market funds over that period of time generated average annual returns of only about 2.25 percent.

Meanwhile, interest rates have declined dramatically since the credit crisis began. The yield on the two-year Treasury note, for example, has fallen from just over 5 percent to about 0.25 percent, yet crediting rates on stable value funds have eased much more gradually. Stable value funds surveyed at the end of September were offering an average crediting rate of 2.99 percent, Mitchell noted, down from 4.81 percent in 2007.

Stable value funds can smooth out interest-rate volatility thanks to their investment contracts, which provide participants contract value withdrawal rights under most circumstances. The contracts allow funds to amortize their gains and losses over the duration of the portfolio, smoothing out returns to investors.