Stable Value Performance Down, Products Improved

Stable value funds’ returns were lower in 2013, but the product offerings continue to improve.

By Rebecca Moore | February 06, 2014
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In general, underlying portfolio performance was weak during the most recent quarter due to a sell-off in many of the fixed income markets, according to Blue Prairie Group’s (BPG) Stable Value Database Executive Summary. The data shows this downward movement in performance has been occurring over the last six quarters or so, mostly due to the sustained low interest rate environment. 

Performance of the underlying portfolios in the third quarter of 2013 over a one-year trailing period ranged from 0.19% to 2.68%, with an average return of 1.71%. Over a trailing three-year annualized period, the range was 1.43% to 3.65%, with an average return of 2.43%. The wide performance dispersion stems from the significant performance differences in separate account products, which tended to have much longer durations, and synthetic products, with shorter durations, BPG explains. Rolling returns continued their descent in third quarter.

In the second quarter of the year, the stable value marketplace saw a dramatic downturn in market-to-book ratio due to a widespread sell-off of bonds. This sell-off was instigated by the Fed’s “tapering” talk, and caused bond prices to decrease significantly. Ratios have recently begun to rebound, with the average increasing from 101.29% in the second quarter to 101.44% in the third quarter. For the second consecutive quarter, however, some funds in BPG’s database reported market-to-book ratios below 100%.  

As forecasted by BPG, crediting rates continued to drop in the third quarter of 2013. The data shows the average crediting rate has fallen over each of the past 10 quarters—plummeting from 3.07% in Q2 2011 to 1.78% at the end of Q3 2013.