Howe Talks Stable Value on AssetTV
Warren Howe, National Sales Director of Stable Value Markets at MetLife was recently featured on AssetTV in a video entitled, "Advantages of Stable Value." He talks about "the advantages of offering stable value as a capital preservation option in a defined contribution (DC) plan." Howe explains, "Stable Value has a lot of advantages, and it's always a good idea to have a Stable Value option in your defined contribution plan. Especially when you think about Plan Sponsors, you need to have a Capital Preservation option in the lineup. Typically, it's either going to be Stable Value, a short-term bond fund or a money market fund. When you look at the three of those, Stable Value is clearly the superior alternative in that case.... When we looked at the volatility in the market late last year, that's kind of the key thing when you think about a Stable Value fund. What does it provide? It provides a safe haven, capital preservation and a reasonable return for participants. It gives people that safe haven for investing when they see the equity markets experiencing 700 point up-and-down at any give time period." Discussing the performance history of Stable Value, Howe comments, "I always find it interesting to look at participants and how they act.... When you see a long bull market in equities people kind of forget about risk. They think that it's always going to continue to go up.... [People] chase those markets and people forget about risk a little. But ... when you bring that volatility back and people understand that there actually is risk, that's when you see those trends reverse and the dollars start to flow out of the equity markets and back into Stable Value." He adds, "There's always been the perception that Stable Value works great in a declining interest rate environment but could experience a little bit of difficulty in a rising interest rate.... I would say that's not necessarily the case. When you look at Stable Value ... it's designed specifically for the defined contribution market and part of that is it's designed to perform in all interest rate scenarios. Whether that be a declining interest rate scenario, a prolonged flat interest rate scenario or a rising rate scenario, it's going to lag the market. So on the way down, Stable Value yields will lag the market based on the crediting rate reset formula in place to provide that volatility smoothing, and on the way up it will lag a bit as well but it will track the general direction of interest rates over time.... It's a little bit of a lag based on crediting rate formula and how it applies that to smooth out that volatility. So that you don't have those periods where you have a gain and then a loss and a negative return, it's smoothing that out for you so the ride is a little bit easier."
