Comments on: Unstable Value Funds? (IV) http://alephblog.com/2009/03/07/unstable-value-funds-iv/ Helping Institutions and Ordinary People Invest Better by Focusing on Risk Control Fri, 25 May 2012 21:31:47 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: AllanFhttp://alephblog.com/2009/03/07/unstable-value-funds-iv/comment-page-1/#comment-21138 AllanF Wed, 11 Mar 2009 02:37:14 +0000 http://alephblog.com/?p=1494#comment-21138 Very interesting Fu. I haven't seen very many stable value funds up close, but the overview of the Maryland one is exactly the type of thing that would be worrying me. First they are into their wrapper counter-parties for 6%. Next, 1/3 of the fund is in asset backed, CMBS and RMBS. Those are pretty much ground zero for the debt bomb that's gone off and brought us to the present situation. On the other hand, it's a tough call what to do. I am becoming more of the mind that at this point it's better to be in a bond fund and equities as they've taken a lot of their medicine already, whereas the stable values seem like they can only go down from here. On the other hand, the scenario that could cause a real run on a stable value for -5 or -10% is also an event that would send stocks down another 20%. What's the old saying, in a crisis all correlations go to + and - 1? In my father's case I infer the bond "index" fund has a lot of govt debt, given it's performance over the last year and last two months. So in a flight to quality crisis I think it will do OK. On the other hand, at the first sign of economic growth I think those bonds are going to take it on the chin as everyone will immediately begin fretting over inflation. Very interesting Fu. I haven’t seen very many stable value funds up close, but the overview of the Maryland one is exactly the type of thing that would be worrying me. First they are into their wrapper counter-parties for 6%. Next, 1/3 of the fund is in asset backed, CMBS and RMBS. Those are pretty much ground zero for the debt bomb that’s gone off and brought us to the present situation.

On the other hand, it’s a tough call what to do. I am becoming more of the mind that at this point it’s better to be in a bond fund and equities as they’ve taken a lot of their medicine already, whereas the stable values seem like they can only go down from here. On the other hand, the scenario that could cause a real run on a stable value for -5 or -10% is also an event that would send stocks down another 20%.

What’s the old saying, in a crisis all correlations go to + and – 1?

In my father’s case I infer the bond “index” fund has a lot of govt debt, given it’s performance over the last year and last two months. So in a flight to quality crisis I think it will do OK. On the other hand, at the first sign of economic growth I think those bonds are going to take it on the chin as everyone will immediately begin fretting over inflation.

]]> By: RedFlaghttp://alephblog.com/2009/03/07/unstable-value-funds-iv/comment-page-1/#comment-21137 RedFlag Tue, 10 Mar 2009 16:35:28 +0000 http://alephblog.com/?p=1494#comment-21137 This is not Ponzi but it is highly correlated with several real (or alleged) ones: http://markovprocesses.com/blog This is not Ponzi but it is highly correlated with several real (or alleged) ones:
http://markovprocesses.com/blog

]]> By: Fuhttp://alephblog.com/2009/03/07/unstable-value-funds-iv/comment-page-1/#comment-21130 Fu Tue, 10 Mar 2009 09:07:21 +0000 http://alephblog.com/?p=1494#comment-21130 > Typically, wrap agreements are only done on the highest-rated bonds, AAA Only 61% of this stable value fund offered by the Maryland pension system is rated AAA: http://www.msrp.state.md.us/icpfactsheet4q08.pdf > Typically, wrap agreements are only done on the highest-rated bonds, AAA

Only 61% of this stable value fund offered by the Maryland pension system is rated AAA:
http://www.msrp.state.md.us/icpfactsheet4q08.pdf

]]> By: AllanFhttp://alephblog.com/2009/03/07/unstable-value-funds-iv/comment-page-1/#comment-21125 AllanF Mon, 09 Mar 2009 18:11:14 +0000 http://alephblog.com/?p=1494#comment-21125 OK, so I went back and read all the SV posts I-IV. I kind of glossed over them when they first were posted. Wow. The similarity of lousy DC experience is stunning, but alas not surprising. Such is the plight of a captive audience, and DC participants are captive. Courtesy of the govt's desire to keep their thumb in every pie of the free market. OK, so I went back and read all the SV posts I-IV. I kind of glossed over them when they first were posted. Wow. The similarity of lousy DC experience is stunning, but alas not surprising. Such is the plight of a captive audience, and DC participants are captive. Courtesy of the govt’s desire to keep their thumb in every pie of the free market.

]]> By: AllanFhttp://alephblog.com/2009/03/07/unstable-value-funds-iv/comment-page-1/#comment-21121 AllanF Sun, 08 Mar 2009 22:38:22 +0000 http://alephblog.com/?p=1494#comment-21121 Ugh, not what I needed to know. :-) My father's union annuity (I think called an SMA, it's like a 401k, but entirely funded by the employer) has only 1 bond "index" fund (index to what I have no idea, it's down 1% YTD, but up 2.8% for the trailing 12 months) and 1 stable value fund (+0.5% YTD, +3.8% TTM). All the rest (11 funds) are equity of one type or another. Back in 2007 I convinced him to move it all into the stable value, where it's been ever since. I have no faith in these guys however. They are chiseling him $10 a *month* in admin fees (on about a $400k balance). Like a 401k, the only way for him to get the money out of the plan is to not work for a couple months. Last year when work was still good, he didn't want to skip any and lose wages. Now he's one of the few remaining working out of his local. The other 90% are unemployed. If were to take a couple months off, there's no telling when he'll be able to get work again. So I guess that is all prelude for asking is there anything in the prospectus that would help one to evaluate the "stability" of the stable value fund? I guess I'll try to research the bond "index" fund, which maybe has a lot of govt. debt as an alternate. Maybe go 50/50 in each. I guess it goes without saying, but it sure is no fun when you're investing by choosing the least worst asset. Ugh, not what I needed to know. :-)

My father’s union annuity (I think called an SMA, it’s like a 401k, but entirely funded by the employer) has only 1 bond “index” fund (index to what I have no idea, it’s down 1% YTD, but up 2.8% for the trailing 12 months) and 1 stable value fund (+0.5% YTD, +3.8% TTM). All the rest (11 funds) are equity of one type or another.

Back in 2007 I convinced him to move it all into the stable value, where it’s been ever since. I have no faith in these guys however. They are chiseling him $10 a *month* in admin fees (on about a $400k balance). Like a 401k, the only way for him to get the money out of the plan is to not work for a couple months. Last year when work was still good, he didn’t want to skip any and lose wages. Now he’s one of the few remaining working out of his local. The other 90% are unemployed. If were to take a couple months off, there’s no telling when he’ll be able to get work again.

So I guess that is all prelude for asking is there anything in the prospectus that would help one to evaluate the “stability” of the stable value fund? I guess I’ll try to research the bond “index” fund, which maybe has a lot of govt. debt as an alternate. Maybe go 50/50 in each.

I guess it goes without saying, but it sure is no fun when you’re investing by choosing the least worst asset.

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