angle-left null Stable Value Fund versus Money Market Fund Yields through Interest Rate Cycles

Stable Value Fund versus Money Market Fund Yields through Interest Rate Cycles

White Paper Manager Insights Income Active Fixed Income
November 2018
Stable Value Fund versus Money Market Fund Yields through Interest Rate Cycles

Authors and Contributors

The primary objective of stable value and money market funds is capital preservation. Both use book value accounting (technically called “amortized cost” in the case of a money market fund) that values assets each day at principal plus accrued interest. Generally, both types of funds invest in securities that have a similar credit quality. The book valuation of stable value funds is explicitly backed by investment contracts issued through financial institutions. Money market funds’ amortized cost accounting is maintained as long as the underlying market value (or “shadow net asset value”) does not fall more than 50 basis points below the daily amortized cost value. The biggest difference between the two, however, is the maturity of the underlying investments. Whereas money market funds typically have an average maturity of 30 to 45 days, stable value funds usually have a 3.0 to 3.5-year average maturity. The ability to invest in longer-dated, higher-yielding assets has historically provided stable value funds a return advantage compared to money market funds.

On January 31, 2018, The Boston Company and Standish merged into Mellon Capital to form a combined entity, BNY Mellon Asset Management North America Corporation. Effective January 2, 2019, this entity was renamed Mellon Investments Corporation.