WASHINGTON - Total investments in stable value assets surged 14% in 2001 to $265 billion, according to a survey by the Stable Value Investment Association.
That is the largest one-year jump in total assets since the SVIA has been monitoring the industry.
Volatile securities markets coupled with the economic downturn boosted defined contribution plan participant interest in stable value investing, said Gina Mitchell, SVIA executive director, Washington. Participants see stable value as a relatively safe investment with long-term return patterns superior to money market funds and comparable with short and intermediate term bonds but without the downside risk of bonds, she said.
The study was conducted jointly by the SVIA and LIMRA International, a financial services research, consulting and marketing firm in Hartford, Conn.
It also found new stable value product sales totaled $62 billion in 2001, nearly 34% higher than the previous year. Of that amount, about 72% were synthetic stable value instruments while only 28% were traditional insurance company guaranteed investment contracts. The average stable value contract size increased to $18.7 million in 2001, up from just more than $15 million in 2000.
Synthetic GICs are contracts that provide the plan sponsor with title to underlying assets, usually a portfolio of traditional fixed-income securities, and a "book value" wrap that provides benefit payments at book value for qualified plan withdrawals. Principal and accumulated interest are guaranteed.
"There's been a general trend toward synthetic contracts but this is the first shift of this magnitude," Ms. Mitchell said.
By way of comparison, in 1995 the survey showed total stable value sales around $46 billion. According to the SVIA, of the 1995 sales 65% were GICs and 34% were synthetic contracts, with the remaining 1% in bank investment contracts.
Getting the message
"The message of diversification of participant accounts has finally been received," said Ms. Mitchell, who added the stock market downturn and volatility contributed to the resurgence in stable value investments.
She said stable value investing has had to overcome years of messages being spread by defined contribution providers who during the 1990s encouraged participants to shift more of their account balances into equities. Stable value dominated defined contribution accounts in the late 1980s and early 1990s before the equity market took off.
When the stock market started to falter in 1999 many participants were stunned by the losses in their equity portfolios and started looking for a less volatile and more predictable alternative and rediscovered stable value funds. According to the SVIA, stable value funds are found in about 60% of defined contribution plans and represent about 15% of defined contribution account balances.