Stable value funds continue to be by far the largest investment type for 401(k) participants who seek low risk and a reasonable return. Stable value balances are estimated to be more than $300 billion and growing.
However, rising interest rates are creating problems for some of the largest stable value funds, which reflect in rates paid to participants that are less than money market funds and bank deposits. Participants in 401(k) plans may need to reallocate to money funds or FDIC insured deposit alternatives.
For example, Wells Fargo Stable Value Fund, one of the largest with about $26 billion in assets, currently has about the same yield as a comparable Fidelity Money Market Fund, based on most recently reported Wells Fargo data as of Nov. 30 and Fidelity data as of Jan. 15. The comparison on the surface isn't equitable because the Fidelity fund has had the full benefit of the December 2018 25-basis-point rate hike, while the December Wells Fargo numbers have had two weeks less to absorb those increases. However, after years of having a substantial performance advantage over money market funds, stable value returns have converged. Other major stable value funds such as Morley Capital Management have had similar, and in some cases, worse results.