Stable value investments function as capital preservation vehicles, offering steady and predictable returns. These investments attempt to maintain a stable net asset value (NAV) while earning interest over time through underlying investments, including fixed income (bonds), wrap issuer contracts, Guaranteed Investment Contracts (GICs), as well as cash and equivalents, typically short term liquid investments such as commercial paper and treasury bills. Stable value can be a confusing investment for many participants. There are several terms used in the industry that are helpful to know as a stable value investor and plan participant.

Key terms in stable value investments

Crediting Rate: the rate earned by investors in a stable value fund. Think of this as the growth rate of your plants, which determines how quickly your garden flourishes. A higher crediting rate means better returns for investors.
Market to Book Ratio: a financial metric used to compare the market value of a stable value fund's assets to its book value. Market value represents the current value of the fund's assets as if they were sold in the open market. The book value reflects the value of the fund’s assets owed to participants. When the market value falls below the book value, the fund’s assets are worth less in the open market than the value listed on the fund’s balance sheet – and vice versa.
Wrap Providers: financial institutions that offer insurance contracts to stable value funds, guaranteeing the return of principal and accrued interest. They act as the protective fencing around your garden, shielding it from market volatility and ensuring its stability.
Guaranteed Investment Contracts (GICs): contracts issued by insurance companies that guarantee a fixed rate of return over a specified period. Stable value managers will send money to insurance companies. In return, they receive a stated interest rate for a period of time and eventually the return of capital, which helps protect against interest rate risk.
Synthetic Guaranteed Investment Contracts (Synthetic GICs): bond portfolios that wrap providers wrap to ensure participants can always liquidate from the fund at book value. Synthetic GICs are considered assets of the fund.
Put Queue: a waiting period that the retirement plan must endure before the plan can exit the stable value fund. The put queue helps the stable value fund manage liquidity and ensures the stability of the investment. Typically, a put queue lasts twelve months. After twelve months, the plan can map the stable value fund into a different investment if desired or let the put expire and remain invested in the fund. Put queues exist at the plan level, not the individual level. In most stable value funds, participants can trade in and out of the stable value fund as they wish, as long as they do not violate the 90-day equity wash provision.
90-Day Equity Wash Provision: if participants wish to move out of their stable value fund, they can only trade into a non-competing fund. Any other capital preservation or short-term investment option, such as a money market fund, would be a competing fund. The participant must invest in a non-competing fund, such as an equity fund, for 90 days before they can move into a competing fund.
Expense Ratios: the investment costs associated with managing a stable value fund. Just as maintaining a garden requires resources like fertilizer and tools, managing a stable value fund incurs expenses. Lower expense ratios mean more of your investment is working for you, resulting in more money back in your pocket.

Recent history in stable value

Over the past several years, the stable value industry has navigated through varying interest rate environments. As interest rates rose quickly through 2022 and 2023, stable value managers saw a slower uptick in crediting rates compared to other capital preservation vehicles, such as money market funds. When interest rates increase, the price of bonds decreases, and the rate of bonds goes up. Therefore, for stable value managers, the fixed income portion of their portfolios lost value, as the bonds they held from a lower interest rate environment were now crediting less. Additionally, during this rapid interest rate increase, the overall market to book of many stable value portfolios dropped significantly.

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Stable value investments offer a steady path to retirement security

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