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PANC 2018: Stable Value Fund Mechanics

On the second day of the 2018 PLANADVISER National Conference in Orlando, William McLaren, vice president and stable value business leader for Lincoln Financial Group, offered a crash course on the current opportunities and challenges associated with offering stable value funds on retirement plan menus.

As McLaren pointed out, U.S. retirement investors are now 10 years out of the Great Recession, but there remains a great focus on capital preservation, particularly as interest rates slowly but steadily increase.

“Stable value is an important product set to monitor as rates increase,” McLaren suggested. “Stable value can help protect retirement investors’ dollars as the rate environment heats up.”

Thinking back over several decades, McLaren explained how the overall long-term secular decline in interest rates drove a common perception that bonds are always safe for protecting an investor’s capital. But those with the long-view know this is not true—and those with a short-view are learning as much right now. Rising rates are causing negative book value returns in various types of bond funds.

“It’s a real surprise to some folks to see the value of their bond portfolios respond negatively to interest rate hikes,” McLaren said. “Simply put, many individuals in the markets today do not understand interest rate risk.”

 

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