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Risks 2018, 6(1), 12; https://doi.org/10.3390/risks6010012

Stable Value Funds Performance

1
The Wharton School, University of Pennsylvania, Philadelphia, PA 19104-6302, USA
2
Principal of Charles River Associates in Boston, Boston, MA 02116-5092, USA
The views expressed herein are the authors and do not reflect or represent the views of Charles River Associates or any of the organizations with which the authors are affiliated.
*
Author to whom correspondence should be addressed.
Received: 16 December 2017 / Revised: 31 January 2018 / Accepted: 9 February 2018 / Published: 21 February 2018

Abstract

Little in the scholarly economics literature is directed specifically to the performance of stable value funds, although they occupy a leading place among retirement investment vehicles. They are currently offered in more than one-third of all defined contribution plans in the USA, with more than $800 billion of assets under management. This paper rigorously examines their performance throughout the entire period since their inception in 1973. We produce a composite index of stable value returns. We next conduct mean-variance analysis, Sharpe and Sortino ratio analysis, stochastic dominance analysis, and optimal multi-period portfolio composition analysis. Our evidence suggests that stable value funds dominate (on average) two major asset classes based on a historical analysis, and that they often occupy a significant position in optimized portfolios across a broad range of risk aversion levels. We discuss factors that contributed to stable value funds’ past performance and whether they can continue to perform well into the future. We also discuss considerations regarding whether or not to include stable value as an element in target date funds within defined contribution pension plans. View Full-Text
Keywords: stable value; defined contribution; optimal asset allocation; stochastic dominance stable value; defined contribution; optimal asset allocation; stochastic dominance
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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).
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Babbel, D.F.; Herce, M.A. Stable Value Funds Performance. Risks 2018, 6, 12.

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