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R.I.P., Stable Value Mutual Funds

An attractive option for investors seeking high yields with low risk in their Individual Retirement Accounts is gone.

The article “Can You Rely On Stable Value Funds?” in the October 2004 issue of Sentinel discussed the pros and cons of stable value investments. It also outlined potential solutions to resolve U.S. Securities and Exchange Commission concerns about stable value mutual funds, a type of stable value fund generally available in IRAs. Since the article was published, every such fund available to the public, including funds offered by Gartmore Funds and Scudder Investments, has converted to a traditional bond fund. The SEC never announced any findings on its investigation of stable value, but according to the fund companies, it was clear which way the SEC was headed. Rather than wait and be forced to convert, each fund converted on its own.

The sole stable value mutual fund used by Palisades Hudson Asset Management, Inc., the Scudder PreservationPlus Income Fund, lifted its insurance wrappers on Nov. 17. As we expected, the fund's net asset value (NAV) immediately increased, because the fair market value of the fund's portfolio was greater than the insurance wrapper amount. Shareholders saw their fund's NAV shoot up 3.1 percent on that date, giving the fund the top year-to-date percentile performance in the short-term bond fund category, according to Morningstar.

From an investment standpoint, we still believe that stable value is an attractive asset class, and that it belongs in some investors' portfolios. Stable value funds offered in employer-sponsored 401(k) plans, which are regulated by the Department of Labor, are still available to the public and have not been affected by the SEC investigation. As the previous article noted, an investor's primary concern when evaluating a stable value fund should be the quality of the fund's portfolio, as well as the quality of the insurance companies protecting the fund from interest rate risk. If you understand the risks involved and are satisfied after evaluating these criteria, then a stable value fund can still be a worthwhile addition to your portfolio.

Vice President and Chief Investment Officer Paul Jacobs, of our Atlanta office, is the author of Chapter 20, “Giving Back,” in our firm’s most recent book, The High Achiever’s Guide To Wealth. He also contributed several chapters to the firm’s previous book, Looking Ahead: Life, Family, Wealth and Business After 55.
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