Industry News

"FABLED VALUES"

In the March 2011 edition of PLANSPONSOR, there is a column with the title above reporting on a recent study on stable value published by authors David F. Babbel Emeritus Professor of the Wharton School, University of Pennsylvania and Miguel A. Herce, Charles River Associates. The column starts out with the following direct quote including the bold face type, "NO OTHER asset class studied has outperformed stable value since their inception in late 1988..." FCM was founded in 1987 and some of our staff have been involved with what is now referred to as stable value since the early 70's, so we strongly suspect that if this study is extended to include the advent of stable value investing around 1969, the only thing that will need to be changed in this statement is the inception date. The column goes on to state the authors concluded that stable value funds have had statistical dominance over "...money market and intermediate term government/credit bond funds (and nearly dominated long-term corporate bond funds as well) over a wide range of risk-aversion levels and, when combined with small stocks and long-term government bonds, occupy a prominent and often the dominant part in optimal portfolios." This finding suggests that stable value would be an excellent diversifier in place of bonds or money market instruments in the target date funds that have been growing in popularity. "The authors contend that the funds "have proven to be quite popular in defined contribution plans" because their "stability, predictability, and preservation of principal help to foster consistent savings habits... which can add a measure of confidence among savers as they prepare for their future needs." Also Risk.net released a piece of good news for stable value when on 4/28/11 they published a report stating that the Commodity Futures Trading Commission (CFTC) had determined that insurance products regulated by state insurance supervisors (such as GICs and wraps and separate account products) are not swaps under the meaning of the Dodd-Frank Act.

(Sources: PLANSPONSOR, Risk.net and FCM)

Updated 5/21/11