STABLE VALUE PEER GROUPS
Peer Group. Fi360 groups stable value investments into three categories.
- CIT. Instead of transferring assets to an insurance company, these types of funds are offered by an investment company/trustee. These contracts allow plans to retain possession of the underlying fixed income securities and pay the investment manager a fee. To maintain book value transactions for participants, investment managers contract with insurance companies to “wrap” the assets, or insure them. While participants now pay fees to both the investment manager and the wrap provider(s), the participants also receive a crediting rate tied directly to the performance of the underlying securities.
- General Account. A general account guaranteed interest contract (“GIC”) is issued by an insurance company to a plan sponsor that guarantees a rate of return for a specified period of time before it matures or can be reset. These funds often provide for a guaranteed minimum interest rate and declared crediting rates may never fall below a certain level. When a participant contributes to this type of fund, the assets are owned by the insurance company and the guaranteed rate of return is provided to the participant. When a participant withdraws from the contract, the insurance company will pay their principal contributions and any accumulated interest (i.e. book value.) In the event of liquidation of the insurance company, participants in the fund may have to wait for payment as the courts allocate the remaining assets to creditors according to state law.
- Separate Account. A separate account is similar to a traditional general account fund, but instead of participant contributions being directed to the general account of the insurance company, the plan assets are held in a separate account with the insurance company that is not subject to any other creditors. Separate Account contracts are off the shelf, and can be used by “anyone”. They’re single insurer (in most cases) wrapped by the provider, and have an underlying investment portfolio that is considered “insolvency remote”.
Number of Peers. The number of investments in the same peer group which were used to calculate any percentile rank or peer median value. For investment performance and expenses, where the values change by share class, each share class of a fund is considered in the peer group population. In other areas such as gross crediting rates, market to book, portfolio issuers and sector/quality/duration breakdowns, each fund is only considered once in the peer group population since the values do not change by share class. For general account and separate account funds, due to the low number of alternative investment vehicles and the inability of some to report market to book and expense ratio information, the number of peers and corresponding median values are not available.
Shareclass (Net). Expressed in percentage terms, this figure represents the investment’s total return over the stated time period net of expenses. The return is net of all fees for the specific share class including management/trustee fees; fund expenses such as wrap providers, sub-advisors, acquired fund fees; and revenue sharing. Total returns for periods longer than one year are expressed in terms of compounded average annual returns (also known as geometric total returns).
Percentile Rank. The relative ranking of an investment within its peer group on a scale of 1-100 (1 being the best) for the data point and time period being measured. Rankings are calculated against the corresponding Peer Group and Number of Peers as explained in the following paragraph. Ranks will not be provided for periods less than one year.
Benchmarks. A benchmark gives an investor a point of reference for evaluating a fund’s performance by comparing benchmark returns to the fund’s returns. Benchmark indices are unmanaged and cannot be invested in directly. This report may utilize one or many of these benchmarks:
- FTSE Treasury Bill 3 Mon. The index measures the performance of the last three three-month Treasury bill month-end rates.
- Barc US Gov/Crdt 1-3 Yr. The index measures the performance of non-securitized component of the U.S. Aggregate Index with maturities of 1-3 years, including Treasuries, government-related issues and corporates. It is a subset of the U.S. Aggregate Index.
UNDERLYING FUND STRUCTURE & PORTFOLIO ISSUERS
Credit Quality. A measurement of an individual's or company's creditworthiness, or the ability to repay its debt. Credit quality is an indicator of credit risk. Third-party rating agencies provide credit ratings ranging from AAA (highest) to D (lowest).
Duration/Maturity. Measures the sensitivity of the price of a fixed income security to a change in interest rates. Duration is expressed in years. Interest rates and fixed income products have an inverse relationship, i.e. rising rates mean falling prices. Higher duration indicates more sensitivity to interest rates and a larger movement in prices.
Ratings. Third-party rating agencies provide credit ratings ranging from AAA (highest) to D (lowest). These ratings are available from S&P/Moody’s/Fitch respectively from left to right in the table. If a given rating is not available, NR will be shown in the column. Credit ratings are subjective opinions of the credit rating agency and not statements of fact and may become stale or subject to change.
Sector Diversification. A breakdown of the types of bond investments backing the investment contracts.
Contract Types. A stable value fund may utilize one or many of these types of contracts.
- Guaranteed Investment Contract (GIC). GICs are obligations purchased from insurance companies or banks that pay a predetermined rate of interest until they mature. GICs are supported by the general account assets of the insurer like an insurance policy.
- Separate Account Contract (SAC). SACs are owned by a life insurance company and distinct from its general account. The separate accounts in which stable value strategies participate contain fixed-income securities that are overseen by an asset management firm, which may be affiliated with the insurance company.
- Short-term Investment Fund (STIF). A short-term investment fund (STIF) is a type of investment fund which invests in money market investments of high quality and low risk.
- Synthetic Investment Contract (SIC). Synthetic contracts include two pieces: a fixed- income portfolio that the fund (or plan) owns, and a book value contract from an insurance company or bank. The contract allows the fund to transact with the portfolio at book value.
- Crediting Rate (Gross). The interest rate on the book value balance of a stable value product before adjusting for expenses and any special provision of the product. As determined by the contract, the crediting rate may remain fixed for the term of the transaction or may be reset at predetermined intervals. It is commonly referred to as the effective annual yield.
- Crediting Rate (Net). The gross crediting rate less all applicable expenses for the fund including revenue sharing.
Crediting Rate Floor. The lowest permissible interest crediting rate that a stable value fund may offer its investors.
- Market To Book Ratio. This ratio takes the book value (value of deposits, plus accumulated interest, minus withdrawals) divided by the market value (amount an investment would be worth if it were sold at a specific time). A ratio higher than 100 is preferable. A ratio lower than 100 indicates that the value of the investments has fallen below the dollar amount contributed by participants (book value).
Investment Mgmt. / Trustee Fee. These fees relate to investment management and other trustee services incurred by the fund.
Fund Expenses: Wrap Providers. This fee is generally only applicable to funds in the Synthetic/CIT peer group. It represents fees paid to insurance companies to wrap (insure) the fund to ensure it can continue to transact at book value on a daily basis even when the market value of the fund might be lower. These wrap providers are listed in the Portfolio Issuers table of the factsheet.
Fund Expenses: Sub-Advisors. This fee is generally only applicable to funds in the Synthetic/CIT peer group. It represents feeds paid to other investment managers to advise/manage the fund or some part of it. These sub-advisors are listed in the corresponding table of the factsheet.
Fund Expenses: Acquired Fund Fees. This fee is generally only applicable to funds in the Synthetic/CIT peer group. These fees are charged directly to underlying funds that the ISAT fund may invest in and represent the operating expenses of the underlying funds and may also include management fees from third party managers.
Fund Expenses: Other. This fee is generally only applicable to funds in the Synthetic/CIT peer group. It includes a catch all for other fund expenses not in the above categories.
Expense Ratio Subtotal. The expense ratio of the fund that includes all of the fees that an investor would pay for the product except for any revenue sharing that might be offered on that share class.
Revenue Sharing / Plan Admin Offsets. Fees paid through the fund which can be used to offset other plan expenses such as recordkeeping and administration. Different share classes of a fund will commonly include varying levels of revenue sharing.
Total Expense Ratio. The total cost of the fund that includes all investment expenses that an investor would pay including any revenue sharing that may be used to offset other plan expenses.
Availability. Stable Value funds are either full service (offered only through their own recordkeeper), investment only (offered through various recordkeepers) or both (offered both on their recordkeeping platform and with outside recordkeepers as well). Generally, if both, there is commonly cost savings to the plan if the provider’s recordkeeping system is selected.
Competing Fund Provision. An investment option in addition to stable value within a defined contribution plan that offers relative principal stability, such as a money market fund, short-term bond fund or other stable value fund.
Equity Wash. A provision in a stable value product that any transfers made from the stable value fund must first be directed to a non-competing investment option (e.g. equity fund or non-competing bond fund) for a stated period of time (usually 90 days) before the funds may be transferred to any competing fixed income fund (such as a money market fund). This provision is intended to reduce interest rate arbitrage by plan participants, thus permitting stable value contract issuers to underwrite the plan without excessive risk exposure.
Put Provision. A put provision describes the ability of a plan to exit a stable value fund at contract value, generally subject to a waiting period.
Sub-Advisors. Some funds utilize one or many sub-advisors to provide investment advice and recommendations with respect to the investment of the fund assets.