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 fund will contain a mix of U.S. governments, agencies, commercial mortgage-backeds, residential mortgage-backeds, corporates and asset-backed securities. Dwight Capital is limited to triple-A buys in all the non-government sectors in order to satisfy the stability her investors are looking for.
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, according to 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 $50,000 of seed money entirely in mortgage-backed and agency-backed securities, though Dagan said the glut of supply predicted to hit the ABS market before yearend could satisfy her sizeable allocation to asset-backeds rather quickly.
"Hopefully we'll have a lot of purchases into the fund to coincide with that volume," she said. "We will be a fairly large player."
"We're looking for bonds that offer value, but they have to be able to withstand varying interest rate scenarios," she said.