Download understanding stable value - Galliard Capital Management

UNDERSTANDING STABLE VALUE
GALLIARD CAPITAL MANAGEMENT
STABLE VALUE STRUCTURE
Investment
Contracts
Cash 4%
U.S. Gov’t/Agy 9%
Other U.S.
Gov’t 11%
Tax Muni 5%
Sov/ Supra 2%
Marketable
Fixed Income Securities
Residential
MBS 35%
Corporates
26%
CMBS 8%
Illustrative of an investment contract.
Not representing that the above is an
actual Galliard portfolio.
Galliard’s stable value
strategy seeks safety
of principal and a
stable crediting rate
utilizing a multi-tiered
approach to investing.
Stable
Value
WHAT IS A STABLE VALUE FUND?
“Stable value funds are capital preservation investment options available in 401(k)
plans and other types of savings plans. They are invested in a high quality, diversified
fixed income portfolio that is protected against interest rate volatility by contracts from
banks and insurance companies. Stable value funds are designed to preserve capital while
providing steady, positive returns. Stable value funds are considered a conservative and
low risk investment compared to other investments offered in 401(k) plans.”1
RELATIVE RISK LEVEL OF A STABLE VALUE FUND
Conservative
Moderate
Aggressive
Money Markets
Bond Funds
Stable Value
Stock Funds
WHAT IS THE INVESTOR PROFILE FOR A STABLE VALUE FUND?
A stable value fund may be appropriate for someone seeking to safeguard
principal or balance a portfolio having more aggressive investments.
HOW DOES STABLE VALUE COMPARE WITH A MONEY MARKET FUND?
Both stable value funds and money market funds seek principal preservation. Stable value
funds have historically produced higher returns than money market funds with less volatility.1
DOES A STABLE VALUE FUND MAINTAIN A CONSTANT NAV OF $1.00 PER
SHARE LIKE A MONEY MARKET MUTUAL FUND?
No. Galliard’s stable value portfolios typically use a rising net asset value (NAV) which is
updated daily. Any interest earned, including income and capital gains, will be reflected
daily in the NAV (i.e. the NAV rises from $10.00 to $10.01, etc.). Some money market
funds typically employ a flat, or constant $1.00 NAV and interest earned is typically
posted to participant accounts once per month versus daily.
HOW ARE GALLIARD’S STABLE VALUE PORTFOLIOS STRUCTURED?
Galliard’s stable value portfolios have a multi-tiered structure. The top tier is primarily
comprised of investment contracts issued by financial institutions. The investment
contracts help to assure that participants can transact at contract value (principal plus
accrued interest) as well as maintain a relatively stable return profile for the portfolio.
All contract issuers are rated investment grade by one of the Nationally Recognized
Statistical Rating Organizations (NRSRO) at time of purchase.
1
Stable Value Investment Association, 2014
800 LaSalle Avenue, Suite 1100
Minneapolis, MN 55102-2054
www.galliard.com 800-717-1617
USV022515
UNDERSTANDING STABLE VALUE
The Stable Value Market
·· Stable value products are
offered in more than half of all
defined contributions plans1
·· Approximately $700 billion is
invested in stable value1
Benefits of Stable Value
Investing
·· Safety of principal
·· Positive returns with limited
volatility
Comparison of Stable Value
and Money Market Funds
·· Both seek principal
preservation
·· Stable value funds have
historically produced higher
returns with less volatility1
1
Source: Stable Value Investment
Association, 2014
Stable value funds are
a popular choice for
retirement plan investors
who are looking for a
conservative fixed
income investment
option that seeks to
provide principal and a
competitive yield.
FOR MORE INFORMATION
Contact your plan administrator
The underlying tier is typically comprised of a diversified portfolio of marketable fixed income
securities whose market prices fluctuate (i.e. bonds). Galliard portfolios are broadly diversified
by issue and issuer in order to reduce the impact of any one holding in the portfolio.
WHAT TYPES OF FIXED INCOME SECURITIES ARE UTILIZED IN THE UNDERLYING TIER?
The types of securities typically utilized in the underlying tier include, but are not limited
to, U.S. Treasury Securities, U.S. Agency Securities, asset backed securities, certificates of
deposits, corporate bonds, mortgage backed securities and cash equivalents such as money
market instruments. All securities are U.S. dollar denominated. All underlying fixed income
securities must also be rated “investment grade” by one of the Nationally Recognized
Statistical Rating Organizations at the time of purchase.
IS A STABLE VALUE FUND A MUTUAL FUND?
No. Stable value funds are not mutual funds. The investment vehicle type used for
Galliard’s stable value strategies are either collective investment funds or separately
managed accounts. Collective investment funds pool together multiple plans to purchase
stable value investments. Separately managed accounts are specifically designed and
managed for a particular plan and do not combine multiple plans into one pool like a
collective investment fund.
IS MY INVESTMENT IN A GALLIARD STABLE VALUE FUND GUARANTEED?
No. An investment in the Fund is neither insured nor guaranteed by the FDIC, the Federal
Reserve Bank, by Wells Fargo Bank, N.A. or Wells Fargo. Galliard’s stable value investment
strategy is conservatively managed and seeks to preserve principal and a stable credited rate
of interest, while generating competitive returns over time. While unlikely, it is possible to
lose money by investing in a stable value fund.
ARE THERE ANY WITHDRAWAL LIMITATIONS?
Qualified plan participant withdrawals are allowed any time without a penalty, regardless
of their frequency or amount. If your Plan has a competing option to a stable value fund, a
90-Day Equity Wash Requirement may apply. A 90-Day Equity Wash Requirement requires
participants to invest in a “non-competing fund” for at least 90 days before transferring
to a “competing” fund option. Examples of “competing fund” options include money
market funds, high quality bond funds with a duration of three years or less, other principal
preservation funds, or brokerage windows. You should consult with your plan administrator
to determine the specific parameters of this requirement and whether it applies.
WHAT ARE THE PRIMARY INVESTMENT RISKS?
The stable value fund’s investment contracts are designed to allow for participant
transactions at contract value (principal and accrued interest). A principal risk of the Fund
is investment contract risk. This includes the risk of issuer default on its obligation or that
another event of default may occur under the contract rendering it invalid; that the contract
will lapse before a replacement contract with favorable terms can be secured; or that the
occurrence of certain events including employer-initiated events, could cause the contract
to lose its book value withdrawal features. Other primary risks include the possibility that
instruments the Fund holds will not meet scheduled interest and/or principal payments;
interest rate risk,including the risk of reinvesting cash flows at lower interest rates; and
liquidity risk. The occurrence of any of these events could cause the Fund to lose value.
Stable value funds are not insured by the FDIC, Federal Reserve Bank, nor guaranteed by Wells Fargo or any affiliate thereof.
Past performance is not an indication of how an investment will perform in the future.