UAM Investment Services Inc. will debut a new, first-of-its-kind "stable value" mutual fund with a 50% allocation to asset-backed securities that is expected to produce a watershed of investment from the sought-after baby-boomer IRA market, a group the fund was specifically designed to attract.
Called the UAM Dwight Capital Preservation Portfolio, the fund is the only stable value mutual fund open to IRA investors through the major fund supermarkets, according to company officials.
The idea is to target the retiree or investor who is rolling out of their defined contribution programs, and offer them a fund that produces higher yields than a money market fund without the risk of losing principle on their investment.
Stable value funds contain guaranteed investment contracts (GICs) that use insurance to protect the net asset value of a customer's principle investment.
The target market is huge, said Laura Dagan, the UAM director who's managing the fund.
"The sky is the limit," she said of the potential volume of such funds. "I'd like to say $20 billion; that's the potential market for these, but it depends on how quickly the investment world can be educated [about the product]."
Dagan said UAM has targeted $250 million of ABS for the first fund year of Dwight Capital, but she expects that number to eventually rise to $1 billion. Currently, the fund has seed money of $50,000 devoted entirely to mortgage-backed and agency-backed securities, though Dagan said the glut of supply predicted to hit the ABS market before year-end could satisfy her sizeable allocation to asset-backeds rather quickly.
"We will be a fairly large player," she said.
The fund will contain a mix of U.S. governments, agencies, commercial MBS, residential MBS, corporates and asset-backed securities. Dwight Capital is limited to triple-A purchases in all nongovernment sectors in order to satisfy the stability Dagan's investors are looking for.
"We're looking for bonds that offer value, but they have to be able to withstand varying interest rate scenarios," she said.
For that reason, most of Dwight Capital's asset-backed allocation will go to fixed-rate paper, though Dagan said some component of floaters will be bought for diversity purposes or swapped into fixed-rate paper when that's more economical than a straight buy. Dagan is interested mainly in home-equity loans, credit cards and some auto loan ABS, all with intermediate durations.