Stable Value Fund Inflows Surge During August Volatility

“Some of those restrictions may not be clearly communicated until a participant tries to make a transaction, and then they’re prevented from making it,” Jeff Elvander, chief investment officer 401(k) Advisors Inc., a consultant to employers that offer defined-contribution retirement plans, told Bloomberg.

The “stable value” largely comes from the purchase of insurance which, unlike money market funds, contains certain restrictions related to liquidity and redemptions. According to the Stable Value Investment Association, stable value funds are structured in two ways: as a separately managed account, which is a stable value fund managed for one specific 401(k) plan; or as a commingled fund, which pools assets from many 401(k) plans. Commingled funds offer the benefits of diversification and economies of scale for smaller plans.

“Regardless of how stable value funds are structured, they are comprised of a diversified portfolio of fixed income securities that are insulated from interest rate movements by contracts from banks and insurance companies,” according to the association’s website. “The protection from interest rate volatility is universal to stable value funds. How this contract protection is delivered depends on the type of stable value fund investment purchased.”