Most fund firms are struggling to find an open door into the burgeoning 401(k) market and instead find themselves locked out by an oligarchy of competitors with a chokehold on distribution at every turn. But there may be a backdoor opening.

This week Principal Financial, the largest distributor to the small plan market, took the wraps off a new fund designed to grab the stable value slice of the 401(k) plan pie. Though stable value funds have lost popularity during the long bull market -- they dropped from nearly half of plan assets in 1990 to less than one-fifth today -- they still represent a significant slice of a roughly $2 trillion pie.

The recent turmoil in the stock market can't hurt stable value's prospects either. Especially since the appeal of the product is that assets are carried at book value and do not show losses to investors. The problem for the industry has been that these are insurance products and are too complex to administer cost-effectively accept in larger plans. The structure of the investment also meant that investors couldn't keep the investment in an IRA.

To solve these problems, Bankers Trust rolled out the first registered, Forty Act stable value fund in the mid-nineties. It was then followed by a handful of competitors, including OppenheimerFunds, Nationwide, and United Asset Management -- then silence.

Principal's new Investors Capital Preservation Fund is the first stable value mutual fund since late 1999 and seems well timed to take advantage of the slump in stocks. It will be offered to qualified plans with more than $3 million in assets.

"The Capital Preservation Fund is one of only a few stable value type investment portfolios available in mutual fund form, and is expected to be popular with 401(k) plan participants with a conservative investment profile," according to Jim Sager, vice president, Principal Management Corporation--investment advisor to Principal Investors Fund.

The firm also plans to make the fund available to 403(b) plans and rollovers to Individual Retirement Accounts, Sager added.

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UAM Launches Stable Value Fund, 09-13-1999  

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