It is challenging to compare fees within stable value pooled fund products. The level of transparency differs for each manager as some managers provide detailed fee disclosure in their quarterly fact sheets and presentation decks, while others are not as transparent. Also, the way stable value managers report the data is not exactly standardized. Thus, it is difficult to make an accurate apples-to-apples comparison.
There are a number of underlying fees that comprise a stable value pooled fund’s “all-in expense ratio” – these fees include:
- the wrap fee
- the trustee fee
- the adviser fee
- the service provider offset or revenue sharing expense
- the sub-adviser fee
- acquired funds fee
- other miscellaneous fees
The terminology isn’t standardized. Some fees are included in the gross crediting rate while others are not. Fees can vary based on the underlying investment amount, the service provider offset, and the type of mandate whether it be an investment only or a full-service mandate. Most stable value pooled funds offer different share classes within the collective trust to reflect the three variables mentioned above. The information per class is not readily available on Morningstar’s platform as it is for mutual funds.
This is just one area of consideration when evaluating stable value funds and should be used along with several other key criteria when completing stable value due diligence.
Other criteria include:
- the experience of the stable value manager
- the experience of the fixed income team
- wrap contracts negotiations
- the wrap issuers commitment to stable value
- the experience and financial strength of the wrap issuers
- the level of diversification of wrap issuers within the fund
- the credit quality and sector distribution of the underlying investments
- termination provisions for plan sponsors and participant led withdrawals
- risk controls
Additional considerations include the crediting rate, yield, duration, and the market to book value of the portfolio.
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Any views expressed herein are those of the author(s) and not necessarily those of Multnomah Group or Multnomah Group’s clients.