Comments on: Unstable Value Funds? (III)

By: David Merkel

David Merkel — Thu, 26 Mar 2009 14:51:45 +0000

I would go for MMFs and short-term bond funds at this point. If I’m with a stable value provider, ask whether the manager has the ability and willingness to pony up for a 10% loss. Only a few of the big guys might do that.

PS — http://online.wsj.com/article/SB123802645178842781.html

By: AntiRL

AntiRL — Sat, 07 Mar 2009 15:10:16 +0000

http://www.kiplinger.com/columns/ask/archive/2009/q0115.htm

In addition, the funds buy insurance “wrappers” that guarantee the principal.

Would the only issue be that like what is happening with AIG, but to avoid that – make sure your Stable Value Fund is backed by several different insurers I guess.

By: dukeb

dukeb — Sat, 07 Mar 2009 02:48:50 +0000

James Dailey – post 2: Your final thought has been my plan for a year. Our extremely limited 401k choices are with Fidelity (via our employer), and their MIP II stable value fund is where we have been forced to park our “cash” to avoid the average 50% – 60% losses in the other fund options. Last year instead of a net loss, we had a gain of 4%. Nothing to cheer about when we know how risky the MIP II may prove–the one paragraph description we are given instead of a prospectus is the scariest one paragraph you might ever read. So we have been lobbying our benefits department to add Fidelity’s short term treasury fund, or at the very least an ultra conservative money market fund to our plan for nearly a year now. (Including requests to let us transfer the account OUT to a 401k with an unrestricted brokerage, which would be the ideal option.) All correspondence has been via email just to keep a written trail. If the Fidelity MIP II ever costs us a penny, there WILL be a lawsuit. Period.

By: AntiRL

AntiRL — Fri, 06 Mar 2009 15:26:04 +0000

Should people start hiding their cash in their sockdrawers or under their beds??? All of my 401k is in a stable value fund and it is the only investment isn’t going down on the monthly basis. I guess a 10% haircut isn’t too bad.

By: Fu

Fu — Fri, 06 Mar 2009 03:30:27 +0000

Here… you can compare from 2008Q1 to 2008Q4 and see some of the downgrades in the assets.

http://www.msrp.state.md.us/icpfactsheet1q08.pdf
http://www.msrp.state.md.us/icpfactsheet4q08.pdf

By: Chris Tobe, CFA

Chris Tobe, CFA — Fri, 06 Mar 2009 02:12:07 +0000

David, Very good article. I am consulting in this area. Hueler has the latest market to book and based on what I heard on those numbers, I am guessing over half the plans are under 97 m/b.
2 weeks ago I published a more technical article on stable value. Send me your e-mail if you want to see it.

Chris Tobe, CFA, CAIA
Breidenbach Capital Consulting
502-648-1303

By: Tom Fisher

Tom Fisher — Thu, 05 Mar 2009 18:49:10 +0000

David, this is an excellent (and scary) post. The dilemma actually seems worse than you suggest. For most people with a DC plan the only “conservative” option besides a stable value/GIC fund is often a MM fund. After last year, people are more aware that MM funds can break the buck. It’s extremely hard to find out the actual investments in a DC plan stable value fund, and most people wouldn’t know how to evaluate them even if they knew how they were invested.

So which is the “most stable option?” Is it the stable value fund that might break the buck, or the MM fund that might break the buck? The Treasury guarantee fund only protects MM funds up to the amount that one held as of last September 19th, so that’s no help for people who’ve been using the SV fund as their conservative option.

By: socialwebcms.com

socialwebcms.com — Thu, 05 Mar 2009 16:35:41 +0000

Unstable Value Funds? …

Stable Value Funds are an element of the market that is quite unclear. Their true value is unknown, because the underlying asset values are unreported. This article examines how they work….

By: Rich

Rich — Thu, 05 Mar 2009 14:53:53 +0000

James,

You have described my 401(k) perfectly: a stable “fixed fund” and Pimco Total Return. The rest are equity funds.

Every time David posts one of these articles, it makes me nervous.

By: James Dailey

James Dailey — Thu, 05 Mar 2009 14:21:47 +0000

This is an interesting problem that is likely not reaching a head at present for an incredibly ironic reason. Many plan participants are currently fleeing “risky” funds seeking cover in “safe” options like the stable value funds. Many of the plans I see have this as their only “money market” equivalent and often just one other fixed income fund, such as Pimco Total Return. This raises two big issues. First, is a bond fund better given the chances of higher interest rates and losses potentially the same or higher than even an impaired stable value fund? Second, what will the litigation aspects be once trustees of these ERISA plans are sued for not offering a truly safe US Treasury only money market fund?