- What are stable value funds?
- What are stable value assets?
- What are the advantages of investing in stable value funds?
- Why should I invest in stable value funds if I can get a high money market rate?
- Aren't stocks a better long-term investment than stable value funds?
- Who can buy stable value funds?
- Is my stable value investment "guaranteed?"
- Does my stable value investment have any security?
- What is the fund's CUSIP/ticker symbol?
1. What are stable value funds?
Stable value funds are fixed income investment vehicles that offer unique risk/return characteristics. The principal amount you invest in stable value is "fixed." It will not fluctuate with the stock and bond markets like most other investments do. However, your stable value savings will grow because your principal earns compound interest.
2. What are stable value assets?
Stable value assets are those assets which maintain the same principal value, regardless of fluctuations in the stock and bond markets. Originally known as Guaranteed Investment Contracts, or GICs, these instruments now include investment contracts issued by insurance companies, banks, and other financial institutions. Stable value funds have evolved to include actively managed, highly rated corporate bonds and structured securities, such as asset-backed securities (ABS) and collateralized mortgage obligations (CMO), wrapped to maintain book value. The funds also hold cash and cash equivalents. Together, these assets are structured to provide liquidity for benefit payments at any time, at the original principal value.
3. What are the advantages of investing in stable value funds?
Stable value investments have provided consistent growth over the long term and are ideal for investors looking to preserve their principal and obtain a secure, high rate of return - without being subjected to market risk. The objective of stable value investments is to provide its participants with a low-risk, stable investment that earns more than U.S. Treasuries and money market funds and stays ahead of inflation. The investments are actively managed to provide liquidity, with an average fund duration of between 2.5 to 3.5 years. This allows monies to be reinvested at current market rates to ensure the fund is never far off general market rates.
4. Why should I invest in stable value funds if I can get a high money market rate?
Stable value funds are a long-term retirement investment. Experience shows that while money market rates may occasionally (and temporarily) equal or exceed rates on a stable value fund, stable value investments will provide greater returns than money market funds over time. An inverted yield curve is a short-term situation. Also, stocks and bonds fluctuate with the market, while stable value assets always compound at book value. This significantly enhances the stable value assets over the investment time horizon of most pension investors.
5. Aren't stocks a better long-term investment than stable value funds?
Over time, stock funds will generally produce a higher return than stable value investments. However, the unique risk/return characteristics of stable value investments make them an excellent choice for investors who want to protect assets and balance portfolio risk.
6. Who can buy stable value funds?
Investors in defined contribution, 401(k), 457 or other types of qualified retirement plans may invest through their employers.
7. Is my stable value investment "guaranteed?"
While not federally guaranteed like U.S. Treasuries, stable value investments are as good as the companies that issue the contracts. That's why there is so much emphasis placed, and so much time spent, on conducting a thorough credit analysis of the companies involved. Investors also should be aware that money market funds and corporate bonds are not federally guaranteed. In fact, a major effort is being made to move away from using the term "guaranteed" so investors won't be misled.
8. Does my stable value investment have any security?
Security on traditional stable value investments is provided in the form of investing in a diversified list of very high quality issuers. Alternative stable value investment contracts include collateral in the form of a pool of investment securities that back the investments. Morley's analysts conduct credit and solvency analyses on each of the companies with whom the fund is invested. This includes meeting with them regularly to gather information on trends and issues, as well as performing face-to-face quality analyses. The analysts delve into the investments, business practices, and future plans of the companies. This in-depth and continuous analysis enables them to spot current and potential problems that might negatively affect an issuer down the road. Additionally, the companies with which the advisor works are highly rated by the independent rating services, such as Moody's, Standard & Poor's, and Fitch. Fund diversification also reduces risk. Most pooled funds have diversification guidelines that allow for no more than 15% and generally less than 10% of the portfolio to be invested with any one issuer.
9. What is the fund's CUSIP/ticker symbol?
Our stable value pooled funds (collective investment trusts) accept investments from employee benefit plans that have been determined to be qualified for tax-exemption by the Internal Revenue Service. Due to regulatory restrictions, these Funds do not have a ticker symbol, and the NAV is not published in daily periodicals. Fund information is, however, provided on a monthly basis to plan sponsors and their consultants.
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