Fondos de valor estable: Todo lo antiguo regresa

Despite being in existence for 40+ years, the stable value fund (SVF) is once again the popular kid on the 401(k) investment block. Thanks to rising interest rates, the funds are increasingly viewed as the low-risk darling of 401(k) plans.

According to the Stable Value Investment Association[1](SVIA), nearly $780 billion had been invested in stable value assets as of December 2015; just three years earlier, that number was $701.3 billion. The assets were in 165,000 defined contribution employee benefit plans and approximately half of all U.S. 401(k) plans. The group recently reported that the asset had risen to $791 billion by the end of Q1 2016.

Marc A. Gallo, managing partner of San Diego-based Fides Wealth Strategies Group[2] and plan advisor for a number of companies, recognizes the attractiveness of SVFs.

“Historically, stable value funds have been a conservative bet,” Gallo said. “They weathered the 2008 downturn and didn’t lose money.”

SVIA data backs this up with a graphic flat line between December 2008 and December 2009 showing minimal volatility in monthly returns[3].

“Investors are concerned when interest rates increase, as they have been, and how that can negatively impact bond fixed income options inside of 401(k) plans,” he said. “But due to the contracts that stable value funds have with banks and insurance companies, they do not experience the fluctuations that other fixed income options typically do.”

Some, however, think that SVFs are on the rise because money market funds have recently come under fire in such lawsuits as Dodd v. Chevron (brought by noted attorney Jerry Schlichter), which states in its filing, “Unlike the vast majority of large 401(k) plans, Chevron failed to offer a stable value fund that would have provided participants the ‘maximum current income’ while preserving capital and liquidity without any greater increase in risk compared to money market investments.”

MetLife’s 2015 Stable Value Study offers insight into why plan sponsors provide a stable value option to participants:

• 65 percent of plan sponsors surveyed say the leading reason is to offer a capital preservation option.
• Half of respondents cite a guaranteed rate of return as their primary driver.
• 49 percent say that stable value offers better returns compared with money markets and other capital preservation choices.

Interestingly, the study notes that a key reason that plan sponsors might not offer an SVF is that their advisor didn’t recommend it (31 percent). Some also say their participants do not know enough about stable value (22 percent) or that they, as plan sponsors, are not well enough informed about such funds (11 percent).

Despite the stability, advisors like Gallo still advise caution.

“Retirement savers should think carefully about using stable value funds as a core holding because they just can’t match the long-term performance potential of stock and bond markets,” Gallo says.

He also sees it as a go-to option for more conservative investors.

Gallo points to recent Department of Labor regulations that dictate how thoroughly an advisor should conduct due diligence on SVFs.

“The advisor side is challenged when trying to do a full fiduciary comparison of stable value options,” he said. “They don’t have ticker symbols or easy access to a breakdown of holdings. We generally don’t have transparency into the banks or insurance companies that are offering the guaranteed interest contracts that are part of the funds.”

“It’s not all unicorns and rainbows behind the scenes.”

[1] http://stablevalue.org/Used with permission (“Users of this website are hereby authorized to use this material provided proper credit is given to Stable Value Investment Association.”)

[2] The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. Marc Gallo is a registered representative with and securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through WCG Wealth Advisors, a registered investment advisor. WCG Wealth Advisors and Fides Wealth Strategies Group are separate entities from LPL Financial.

[3] http://stablevalue.org/Used with permission (“Users of this website are hereby authorized to use this material provided proper credit is given to Stable Value Investment Association.”)