Stable Value — a perfect partner for equities

Executive summary

As an asset class, stable value can be a more attractive alternative than other fixed-income options as a complement to equities. The returns are similar to bonds, but principal protection, far less volatility, and lower correlations with equities make for a better risk-adjusted outcome.

The diversification built into a balanced portfolio of 60% equities/40% fixed income works well most of the time. However, during difficult periods when markets declined and interest rates rose sharply, such as 1994 and 2022, using a fixed-income alternative such as stable value would have reduced portfolio losses.

In more complex asset allocation scenarios containing a range of asset classes:

• Even though money market funds and stable value have very similar overall standard deviations and correlations with other assets, there is a large advantage for stable value in terms of long-term average return.
• Relative to bonds, stable value has dramatically lower volatility and correlations with equity assets, which more than offsets slightly lower long-term average return. When stable value is introduced to a multi-asset class opportunity set, it is better than other bond assets on the efficient frontier, and also produces portfolios with lower standard deviation.