401(k) Specialist Issue 1 - 2016 - 28

STABLE VALUE FUNDS
Columbia Threadneedle
Investments
MetLife
WHY STABLE VALUE FUNDS, AND WHY NOW?
" First and foremost, stable value funds should be considered for the excess
return they generate over mutual funds over time, " says Thomas Schuster, vice
president of stable value and investment products with MetLife. " It's the only
option designed specifically for the defined contribution space. Money market
funds are for the retail market. Stable value funds are also designed to go further
out on the yield curve for longer durations. "
We weren't sure if our description of a stable value " resurgence " was necessarily
accurate. Schuster and his colleague Warren Howe, national sales director
for MetLife stable value markets, put us at ease.
" There has been a resurgence in stable value funds, "
Howe says. " There has always been a case for stable
value funds over money market funds, but now with the
new regulations, it's even stronger. "
Research seems to back them up. " MetLife's 2015
Thomas Schuster
Vice President
of Stable Value
and Investment
Products
Stable Value Study, " released late last year, found a vast
majority (82 percent) of 401(k) plan sponsors who are
familiar with the new rules governing money market
funds feel stable value is a more attractive capital preservation
option for plan participants.
It also finds most stable value fund providers and
advisors predict that the use of money market funds in
defined contribution plans will decline over the next
few years. The result? More stable value use.
Howe adds that there have been two significant
Warren Howe
National Sales
Director for Metlife
Stable Value
Markets
rounds of changes with money market funds, not only
to the structure but also the return. For instance, money
market fees were not always counted in the return, and
now that they are counted, stable value funds are even
better by comparison.
" Stable value funds tend to have longer duration
times than other pooled products out there, " he argues.
" Any stable value fund will outperform money market
funds over time and duration. "
As to why MetLife, in particular, does so well in the
space, Schuster attributes it to the investment giant's
" open-mindedness. "
" We design stable value funds to the risk return
profile of the particular plan, " he concludes. " It's about customization, rather
than trying to position one product across the board. MetLife has been in the
stable value business for 40 years through all market cycles. We therefore don't
overreact and have perspective that our competitors don't. "
Jim McKay
Portfolio Manager
for Stable Value
Management
ASK LEONARD APLET about Columbia Threadneedle's
dominance in the stable value space and he immediately
points to research. It's easy to see why.
" We have 12 stable value research analysts, 66 fixed-income
research analysts, and 180 overall, " says Aplet, senior
portfolio manager, head of short duration fixed-income and
stable value with the firm. " So there's
a huge emphasis on the research
team. Also, we have the stability of
our cash flows and our high quality
portfolios. "
He notes the two " flavors " of
Leonard Aplet
Senior Portfolio
Manager
stable value products provided by the
firm-government-only and investment
grade.
" It doesn't matter if they're
co-mingled trusts or large institutional
clients, either can buy in, "
Aplet explains. " Government-only is
appropriate for those that don't want
to be subjected to credit risk. "
Unsurprisingly, he too notes the
new money market fund regulations
are perfect for stable value products
to act as an alternative, " which have a
higher return and similar stability. "
Jim McKay, portfolio manager for
stable value management at Ameriprise
Trust Company [which has
owned Columbia Threadneedle since
2009] adds that the diversification
aspects of their wrap provider relationships
is also a contributing factor
to the company's outperformance in the space.
" We have relationships with eight to 10 stable value wrap
providers, so the marketplace is solid, " McKay notes. " It was
a good investment back in 2008; the issue was that wrap
insurance issuers saw more risk overall and pulled back or
froze business altogether. However, others stepped up to fill
the issuer gap. Today, there is once again more capacity and
flexibility in stable value wrap contracts. "
Stable Value Stalwarts
MetLife | Vanguard
| Putnam | Wells Fargo | Key Bank | Columbia |
28 ISSUE 1 2016 | 401kSpecialistmag.com
Galliard | BMO | Morley | Principal
| Invesco
http://www.401kSpecialistmag.com
401(k) Specialist Issue 1 - 2016

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