Stable Value Funds

[ripper1]

I have a stable value fund that is earning 3.3% right now. Does anybody have any thoughts on using this as a core investment for the fixed income space at this time considering the current interest rate environment? My other bond funds are VBTLX and DODIX.

 

[photoguy]

I'm very curious about this as well, since it sounds like a SV fund simply wouldn't add up -- it's based on bonds, but you are also buying an insurance wrap. Unless the insurance is seriously mispriced, the expected returns have to be lower than a bond fund (because of the insurance drag). I admit that I don't know very much about this product and would be very happy if someone could explain the pros/cons in more detail.

This link from vanguard provides some more information:

https://pressroom.vanguard.com/nonindexed/7.23.2012_Stable_Value_Funds.pdf

It seems like the key factors to consider are the extra expense ratio for the insurance, viability of the insurer, and the liquidity restrictions.

 

[ripper1]

I'm very curious about this as well, since it sounds like a SV fund simply wouldn't add up -- it's based on bonds, but you are also buying an insurance wrap. Unless the insurance is seriously mispriced, the expected returns have to be lower than a bond fund (because of the insurance drag). I admit that I don't know very much about this product and would be very happy if someone could explain the pros/cons in more detail.

This link from vanguard provides some more information:

https://pressroom.vanguard.com/nonindexed/7.23.2012_Stable_Value_Funds.pdf

It seems like the key factors to consider are the extra expense ratio for the insurance, viability of the insurer, and the liquidity restrictions.

The blended fixed option I am in has no expense ratio.

 

[veremchuka]

I have done this for many years. My SVF yield is 3.1 or 3.2% and there's never been a nav decrease since I have tracked it in 13 years. The nav may increase more or less quickly but it has never dropped. It's an excellent substitute for the bond funds in my 401k and even now that I have most of the 401k at Vanguard I still keep the SVF.

 

[haha]

I have a stable value fund that is earning 3.3% right now. Does anybody have any thoughts on using this as a core investment for the fixed income space at this time considering the current interest rate environment? My other bond funds are VBTLX and DODIX.

Are the expenses borne by a government entity? Otherwise, how can a fund have no expenses? Can anyone go out and buy this fund? What is its symbol?

Ha

 

[ripper1]

Are the expenses borne by a government entity? Otherwise, how can a fund have no expenses? Can anyone go out and buy this fund? What is its symbol?

Ha

It is through Nationwide from my former employer the City of Chicago. It is in a 457 offered to city employees. It doesn't have a symbol and is just called, "Chicago Blended Fixed Account."

 

[MooreBonds]

Are the expenses borne by a government entity? Otherwise, how can a fund have no expenses? Can anyone go out and buy this fund? What is its symbol?

Ha

Many times, the "Stable Value Fund" is actually a short-term loan to the parent (or another) insurance company. This typically will pay short-term rates slightly higher than a money market fund...although these days, they can be a LOT higher yielding than a MM fund.

However, if it is the type that's a 'loan' to the insurance company, then it's only backed by the claims paying ability of the insurer. So while the yield is generous for a liquid, stable value fund - there is some credit risk involved.

As such, it's more like a short-term bond fund...but since Stable Value Funds are set up to achieve a stable value (i.e. a slow, steady increase in share value, like a MM fund that reinvests dividends) rather than fluctuate in NAV based on underlying holdings, AND because it doesn't really have an expense ratio (because it's simply like a savings account with interest paid by the insurance company), they are often thought of as MM funds.

The craptastic 401(k) I have with my employer is managed by Transamerica Retirement Solutions, and their SVF is called the Transamerica Stable Value Advantage Account.

 

[MooreBonds]

Attached the prospectus this time for my SVF.

 

[brewer12345]

Stable value funds are an ideal choice for fixed income allocations at this part of the cycle. If I had access to one I would have all my fixed income exposure there.

Sorry, Ha, qualified plans only for these things.

 

[ripper1]

Believe it or not at one point these things were returning around 12%. Although that was in 1981 when I first started with my employer and everybody that was in this 457 from Nationwide was putting their money there although there was various funds to choose from. Now they have been fluctuating between 3 and 4%.

 

[eytonxav]

The stable value fund in my prior employers 401K plan is a TRP Stable Value fund and its past one year performance was 2.38%. I suppose they are not taking on as much risk as some other SV funds.

 

[foxfirev5]

While my 401k w/ Megacorp offer extrememly low cost mutual funds, VG Instl class, PTTRX Instl Class C, etc the SV fund is pretty weak. The Fidelity MPII fund they use currently only has a 1.35% yield. However over the years it has reacted quickly up and down with rates and there never have been any restrictions on redemptions. For this reason I'm holding about 30% of my bond holdings in this option.

 

[haha]

Thanks everyone, my understanding of this is quite a bit better now.

Ha

 

[ripper1]

I think I made up my mind. Seeing that DODIX is yielding 3.3 and has an e/r of .43 I am better off in the stable value earning 3.3 without the expense.

 

[Animorph]

I think I made up my mind. Seeing that DODIX is yielding 3.3 and has an e/r of .43 I am better off in the stable value earning 3.3 without the expense.

Two different kettles of fish. What index is the SV fund tracking? I think they're all pretty different. Can't really compare ER's for those two. And surely the SV has an expense.

 

[brewer12345]

Two different kettles of fish. What index is the SV fund tracking? I think they're all pretty different. Can't really compare ER's for those two. And surely the SV has an expense.

It does not work that way. SV fund is roughly equivalent to a money market fund.

 

[ripper1]

Well, I guess the 3.3 yield is net of fees.

 

[pb4uski]

I have a stable value fund that is earning 3.3% right now. Does anybody have any thoughts on using this as a core investment for the fixed income space at this time considering the current interest rate environment? My other bond funds are VBTLX and DODIX.

Absolutely, I would use it as my core fixed income investment. Better yield than intermediate corporate bonds and almost no interest rate risk. I wish I had a stable value fund available to me.

Like Brewer said it is essentially a 3.3% money market fund.

 

[bmcgonig]

Absolutely, I would use it as my core fixed income investment. Better yield than intermediate corporate bonds and almost no interest rate risk. I wish I had a stable value fund available to me.

Like Brewer said it is essentially a 3.3% money market fund.

Is it possible to get the Vanguard one for one's IRA? I don't see a ticker anywhere

Thanks

 

[pb4uski]

I don't think you can get it unless your employer or former employer has it in their plan. Not available to the general public to the best of my knowledge.

 

[Bigal50]

What I recall when I looked at this recently is that Stable Value funds are not permitted by the SEC. the Dept of Labor controls 401(k)'s and allows Stable Value funds.

So the only way you invest is inside a 401(k) or other defined contribution plan.

http://en.wikipedia.org/wiki/Stable_value_fund

 

[rodi]

With the latest corporate takeover I now have access to a stable value fund. (former corporate overlords didn't offer that.) It's run by prudential. The one I've got says 3.2% net interest.

A far cry better than the money market fund with the former 401k plan.

(Unfortunately, the other fund choices are mostly suck-tastic... except the lone vanguard institutional fund.... so my new contributions are going to these two funds and I balance accordingly in my IRAs and taxable.)

 

[Midpack]

Stable value funds are an ideal choice for fixed income allocations at this part of the cycle. If I had access to one I would have all my fixed income exposure there.

+1, me too.

 

[Beryl]

I wish I had a stable value fund available to me.

Yeppy. I lost mine when I converted my 401K. The very next day after making that mistake, I tried in vain to reverse it.

 

[seraphim]

A 457 is for public employees: it can be rolled over into an IRA, but if one is between the ages of 55 and 59.5, one loses the ability to withdraw fuds without a tax penalty. My standard account has an ER of .25 and has been returning about 2.5%, down from about 5% of several years ago. Another 457 account is less traditional, a DROP account, which had a guaranteed return of 5%, until April of 2012, when the board tied the return to the 10 year treasury yield. When they submitted the plan to the state for approval, about a year or so earlier, I don't think they expected the Treasry yield to drop as low as it did.