P&I Bullish on Stable Value Funds
Pensions & Investments writes that, "Slumping equity markets could help stable value." They tell us, "Retirement investors took on more equity risk last year amid a rebound from the coronavirus pandemic, causing a slump in stable value industry assets after surging in 2020 when investors sought safety. The stable value asset gains in early 2020 began to evaporate in late 2020 and in 2021, but the big questions for a possible stable value comeback in 2022 depend on the stock market, the bond market, interest rates and competition from money market funds." They quote David O'Meara of Willis Towers Watson PLC, "Participant flows tend to follow the stock market. If stocks struggle, we expect to see participants retrench into money market and stable value. Conversely, if stocks rebound, participants will likely migrate back to the equity market." The article continues, "For the five months through May 31, the S&P 500 index was down 12.8%. During this period the Bloomberg U.S. Aggregate Bond index was down 8.9%. An erratic stock market and battered bond funds due to rising interest rates provide a one-two punch against investors that could help stable value funds, said Greg Jenkins, ... head of institutional defined contribution for Invesco Ltd. In this environment, stable value is 'fulfilling its role in spades by providing downside protection to participants,' Mr. Jenkins said. `Invesco's stable value assets under management of $40 billion in 2021 rose 4.27% from the end of 2020." P&I also quotes Michael Norman ... co-president of Galliard Capital Management LLC, a subsidiary of Allspring Global Investments, "Historically, volatility in the market — typically the equity market — has led to inflows into stable value options." The piece adds, "According to P&I data, Allspring saw a 7.6% drop in stable value assets to $59.7 billion, a function of pandemic-induced inflows in 2020 and market-recovery-prompted outflows, Mr. Norman said. Another source for potential stable value growth is from plans that offer only a money market fund for capital preservation. Stable value crediting rates -- the interest rate on a stable value contract -- move in conjunction with interest rates, but they don't move as quickly -- up or down -- as money market funds. 'It is very possible that in the early stages of a rapidly rising interest rate environment you could see the crediting rate of a stable value product not immediately start upward in lockstep with interest rates, due to the lag within the stable value products as they work through the contract rate resets and the impact of yield change,' Mr. Norman said."
