Invesco Stable Asset Fund in my 401K

DPN

Hi all,

Regarding Invesco Stable Asset Fund

This is is a rookie question, but what would you use this fund for in a 401K account? It's one of the funds in my company 401k plan but I don't understand what this option would be used for except to essentially hold cash at a cost 1.24%.

If I believe the market is going to get hammered, would the Invesco Stable Asset fund also go down with it. Or, is it meant to be a safe haven in that situation?

My 401K investments are doing pretty good in the following funds, but I fear the next 6-18 months, and expect we may see a nasty correction in stocks. I plan on riding it out but want to know my options regarding Invesco Stable Asset Fund.

Current investments in:
T. Rowe Price Retirement 2030 Fund - Class R
MFS Value Fund - Class R2
AllianzGI NFJ Small-Cap Value Fund - Class A
T.Rowe Price International Growth & Income Fund - Advisor Class
Alger Capital Appreciation Institutional Fund - Class I
PIMCO Total Return Fund - Class A
Janus Overseas Fund - Class S

Thx
DPN

catch22

Hi DPN,
You noted: "It's one of the funds in my company 401k plan but I don't understand what this option would be used for except to essentially hold cash at a cost 1.24%"

Yes, except the last few words..........would be.....to hold cash and obtain a yield of 1.24%.
So, yes; stable value/asset funds within retirement fund accounts are generally viewed as a parking place for monies awaiting another home. In theory, a stable value fund will retain its value and continue to pay a yield, if the equity markets are turning down. Within your choices, it is also likely that the Pimco Total Return fund may increase in value; if the equity markets are looking even more sour and moving down.

Our house used stable value funds available to us within our then company retirement plans to park monies when we exited our equity fund holdings in June, 2008.

The first link below will give you a reading list; these funds vary by vendor, but are various blends of bond holdings in some form or another.

The second link may not be a true image of the fund you have available, but may give you a clue to a similar fund from Invesco. You should have access to data with your company plan to review the exact nature/holdings/etc. of the Invesco stable asset fund.

What is a stable asset/value fund?

Invesco Stable Value Fund info

Hope this helps a bit.

Regards,
Catch

Investor

Stable value funds typically hold insurance contracts. They were once called guaranteed insurance contracts until some lawsuits caused them to be renamed to stable value dropping the implied guarantee. They are somewhat illiquid investments and in times of market stress these funds may limit/suspend redemptions.

It happened in 2008. Higher yield over money market funds is due to illiquidity premium. Regular mutual funds are much more restrictive on liquidity and mark to market requirements thus you do not see these offered in mutual fund format outside of 401k or similar plans.

msf

Reply to @Investor:
I was not aware of any restriction on naming these holdings. TIAA-CREF's Stable Value Retirement Annuity (offered in 403(b)s) says that it "is a guaranteed annuity backed by TIAA's claims-paying ability. [It] guarantees your principal and a minimum interest rate, plus it offers the opportunity for additional amounts in excess of the guaranteed rate."

TIAA-CREF goes on to say, point blank, "TIAA Stable Return is a guaranteed insurance contract ..."
https://www.tiaa-cref.org/public/performance/retirement/profiles/4006.html

That's not to say that most stable value funds these days don't contain synthetic GICs and other products that likely preclude them from being called GICs. If you've got any pointers to lawsuits that might have scared off the companies from calling them GICs, I'd be curious to see what the complaints were. (They're easy enough to imagine; I'm curious about the impact on the naming of the offerings.)

fundalarm

Reply to @Investor: "Stable value funds typically hold insurance contracts." not quite. Stable value funds hold mostly short to medium term high grade securities. the funds have an insurance wrapper guaranteeing that the investors will receive their $1 NAV. After some securities failed during the crisis, the insurance companies refused to insure stable value pools unless (1) the premium would go up significantly, and (2) the funds held highest quality short term stuff. Hence, you have today's low rate/high expense, but principal guarantee investment option. Some companies, who couldn't re-negotiate with the insurance companies, left the space. jr

Investor

Reply to @msf:

Hi, the following links mentions lawsuits for some GIC contracts (Unisys Employee Fund mentioned):

http://en.wikipedia.org/wiki/Guaranteed_investment_contract


A few links regarding regarding lawsuits on SVF and SVFs in trouble.

http://www.sec.gov/litigation/complaints/2009/comp21010.pdf
http://www.investmentnews.com/article/20081005/REG/310069978
http://www.reuters.com/article/2012/07/21/us-labor-jpmorgan-idUSBRE86J1B720120721
http://www.meitesmulder.com/CM/CurrentCaseUpdates/jpmorgan.asp
http://www.kelleydrye.com/publications/articles/0519/_res/id=Files/index=0
http://www.bizjournals.com/stlouis/stories/2002/12/23/story3.html?page=all
http://www.fiduciarycounselors.com/press/SVIA_CaseStudy102006.pdf
http://online.wsj.com/article/SB123871881205784839.html

There are even consultants advertising their services for Stable Value funds recover assets (lawsuits mentioned)
http://stablevalueconsultants.com/Witness.html

A couple of articles regarding risks:

http://www.pensionriskmatters.com/uploads/file/Stable Value Risk Management_SMangiero_SVIA_111910.pdf
http://www.metrocorpcounsel.com/articles/11478/liquidity-issues-plan-fiduciaries-relating-securities-lending-or-stable-value-funds
http://online.wsj.com/article/SB123802645178842781.html
http://www.mymoneyblog.com/stable-value-funds-exploring-risks-and-rewards.html
http://alephblog.com/2009/03/05/unstable-value-funds-iii/

Here is some info regarding transformation from GIC to more generic Stable Value

http://articles.sun-sentinel.com/1997-02-24/business/9702210123_1_stable-value-value-funds-retirement-accounts
http://business.highbeam.com/435607/article-1G1-19452425/dont-call-them-gics
http://benefitslink.com/boards/index.php?/topic/31992-gics-and-surrender-charges/
http://www.lmstrategies.com/types~2.html

But stable value might not last too long either. With the change in contents it may become "Interest Income" fund removing any implied stability as well. Perhaps, they wanted to remove a possibility of lawsuit based on name.

https://workplaceservices300.fidelity.com/static/dcl/netbenefits/documents/IBM_30200_StableValueFundNameChange.pdf

Investor

Reply to @fundalarm: They have GIC and/or other illiquid assets. The assets that were considered safe were safe until they were not. Now they are more cautious but in good times such caution is thrown out. In the latest round, when DOL decided what funds can be considered default investments, SVF dropped because of problems. Now, only balanced funds and target date funds can be default.

jerry

Avoid the link in catch's post dealing with invesco/ It merely leads to an agreement and is hard to get out of. I know I had to use my task manager to get out

catch22

Reply to @jerry:

I checked the Invesco link again; and it is only a PDF file, with the data about the particular Stable Value Fund. I don't understand how this would cause the problem you indicate.
Interesting. Having to use task master to get out of anything is not a good sign of a pc functioning happily.

msf

Reply to @Investor:
Wow. Thanks!

I went right to your links on the name change; those articles seem to confirm my suspicion that when you wrote that the lawsuits "caused" the name change, what you meant was from a PR, not a legal, perspective. No question about that!

I am interested in the particular suits as well, though it may take me longer to get to those articles. Right now I'm busy helping a friend of a friend get out of a high cost, high load annuity contract she was put into by a broker. He also put 20% of other moneys into a gold fund when gold was around 1600. (As people here likely know, I'm no gold bug, but reasonable people can differ, so I had suggested to her that 5% was okay to smooth out her portfolio, or maybe up to 10% if she really wanted to speculate.) Oh yes, that's class C shares (1% back end load); but hey, its a five star fund - and it is doing well this year, relatively.

So these posts right now are my break from reading through all the docs I got emailed.