401(k) Specialist Issue 1 - 2016 - 29

STABLE VALUE FUNDS
Putnam Investments
IF YOU UNDERSTAND the 401(k) space and engage as an advisor
in education and enrollment, you'll be ranked highly no matter what
product you offer to plan participants. Boston-based Putman Investments
seems to have figured this out.
" As money market rates are dropping to basically zero, stable value
funds have been a great source of yield, " says Scott Sipple, head of global
investment strategies at Putnam Investments. " The guarantee is a large
part of that; the ability to get yield as an alternative to money markets. "
Putnam is known in the space because, as Sipple argues, " we are
fortunate to have a world-class fixed-income group, can look at a broad
number of credit instruments to put it into the portfolio. "
And then there's the issue of capacity. As the market tanked for just
about everything in 2008, wrap providers pulled back, but Putnam has
" great wrap relationships " due to one major competitive advantage-it's
alignment with Great West Life.
" That relationship is certainly an advantage, " Sipple concludes. " They
have competitive products and instruments. "
Galliard Capital Management
WE MUST SAY, the stable value educational material Galliard Capital Management sent through
prior to our interview, and specifically the differences between stable value and money market
funds, was first rate, and worth a look by 401(k) advisors.
Mike Norman, partner at Galliard Capital Management, concedes the concept behind the rise
of stable value funds is driven by money market reform, but he also claims that word is getting out
about the intermediate bond risk/return profile, one without money market funds' daily volatility.
" Our story has been super-consistent, " Noman says. " We realize when it comes to conservative
investments interest rates are rising, but stable value funds will stay positive as other areas of fixed
income go negative, which is an advantage. "
He also says that user demographic for stable value funds has traditionally been older.
" Now, there is a stable value upswing with millennials because they know nothing but volatility;
it's what they've grown up with, " Norman adds. " It's saving vs. investing, keeping and protecting
money as opposed to making money. They recognize it has a role to play in the low-volatility
portion of their portfolio. "
Nick Gage, Galliard's head of stable value separate account management, also points to the
attention the space is getting from " traditionally non-stable value users, " and that plan sponsors are
looking at it for principal protection.
" Stable value adds 150 to 200 basis points per year over institutional money market funds
with similar timelines, " Gage says. " As retirement saving has a long time horizon, it can make a
significant difference. Our success has to do with the experience and the continuity of our team,
their confidence with clients and the credibility we bring not only with stable value funds but the
underlying fixed-income portfolio. "
Scott Sipple
Head of Global
Investment
Strategies
Vanguard Stable
Value Management
STABLE VALUE IS a smart, conservative strategy,
so of course Vanguard will show up on a
list of who's-who in the space.
" In a low interest rate environment, stable
value funds looks good, " says Susan Graef, a
principal in Vanguard Stable Value Management,
a group responsible for managing $26
billion in assets for defined contribution and
529 plans, including $18 billion in pooled
stable value offerings. " In 2008, volatility hit
all sectors and plan sponsors took a look at all
investment options. Stable value funds were
not alone in that. "
Fast-forward past the credit crisis, she
explains, and plan sponsors are looking for
another principal-protected product as an
alternative to money markets. And guess what
comes up big?
" Vanguard has higher yields and longer durations
of underlying funds " Graef says when
asked about what the firm does different.
" It's our approach to fixed income, and our
controlled risk is very good. "
Stable value was able to navigate its way
through the credit crisis, and it earned about
as expected and at times above what was
expected, she notes.
" Why did it get a bad reputation recently?
It is a principal-protected vehicle that
is backed by fixed income assets, " Graef
concludes. " There are certain restrictions on
stable value at the plan level. Those restrictions
might have discouraged plan sponsors. Also, if
your investors are using stable value exclusively,
that might not be the best allocation.
Vanguard has always advocated for a well-diversified
portfolio. Lastly, wrap providers were
stressed and capacity was therefore down, but
the market has since recovered. "
Mike Norman
Partner at Galliard
Capital Management
Nick Gage
Head of Stable Value
Separate Account
Management
Susan Graef
Principal in
Vanguard Stable
Value Management
ISSUE 1 2016 | 401kSpecialistmag.com 29

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