Barron's on Stable Value Funds
Barron's writes "No Stomach for Stock-Market Swings? Consider Stable Value Funds," which tells us, "For risk-averse investors, there seems to be nowhere to hide these days.... But if you have a 401(k), you have an oft-overlooked option. Stable value funds—found only in employer-sponsored retirement plans -- combine high-quality fixed-income portfolios with an insurance wrapper. When times are good, investors earn less than they would without the protection, but when things get choppy, the insurance kicks in and protects their principal. In 2008, when intermediate bond funds lost 4.7% of their net asset value, these funds returned an average of 4.6%, according to Hueler Analytics, a Minneapolis-based firm that tracks and analyzes stable value funds." The piece explains, "These funds have been around for decades but could be particularly useful to income-seeking investors today. They yield somewhere between short-term bonds and intermediate bonds -- nothing to build a nest egg on, but enough to keep pace with inflation. The universe has averaged a 2.3% total return over the past decade through Aug. 31, according to Hueler. Over the past year, returns have hovered just above 2%. Despite assets of $758 billion, according to the latest figures from the Stable Value Investment Association, these funds are the wallflowers of the investment world. They don't trade like traditional mutual funds, and information about them isn't widely available.... But investors must rely on plan sponsors to choose the funds for them. Roughly half of all defined-contribution plans have a stable value offering, typically just one and increasingly in lieu of a money-market fund. The question for investors, then, isn't which fund to choose, but whether this is a good fit for their portfolio, and whether that particular fund is up to snuff. The largest by far is the Wells Fargo Stable Returns fund, with nearly $27 billion in assets, followed by the $19.5 billion Vanguard Retirement Savings Trust, and $15 billion T. Rowe Price Stable Value fund.... As interest rates rise, money-market funds may reflect that change sooner, but over time, stable value funds should track broader interest-rate trends."
