Good Article from Employee Benefit News on Stable Value Funds: (condensed)
Remember the days when employees sat down with their HR/benefits representative to decide which of the available investment funds to include in a 401(k) retirement portfolio?
One fund looked like a sure thing — conservative and boring, but safe. Thinking they couldn't go wrong, many employees may have allocated 50% or more of 401(k) savings to that fund, also known as the "stable-value fund."
Despite the name and generally strong track record, stable-value funds aren't entirely stable anymore. Investors can lose money, and the funds also carry credit risks. While stable value fund managers try to maintain a fixed $1 unit price, they can't guarantee it because the yield and underlying investments fluctuate with the investments they are in.
For example, in 2005, the Trust Advisors Stable Value Plus fund declared bankruptcy. And in December 2008, Invesco's stable value fund available to Lehman Brothers employees lost 1.7%. Today, the market value of many stable value funds is below the book value. And more of these funds could be impacted as bankruptcies increase in the current financial mess.
It is important to note, however that many stable value funds have performed admirably in this market. For example, the ABN Amro Income Plus fund has had decent returns in excess of 3-4% per year over the last several years. Many investment advsiers are using this fund as their "money market". or "cash" option.
