Key highlights of the annual study include:
- Fees have decreased to an asset-weighted average of 0.74 percent in 2015 from 0.79 percent in 2014, because of increasing investor demand for less-expensive direct-sold plans and low-cost passive investments within the plans that offer them. On average, the typical direct-sold 529 plan participant pays 20 basis points in addition to the cost of the underlying funds, while the typical participant in an advisor-sold plan pays an additional 70 basis points.
- Assets in the 529 college-savings plans Morningstar tracks increased 4 percent in 2015 to $227 billion, powered by net new flows of about $10 billion. Direct-sold plans continue to take market share from advisor-sold plans and now represent 53 percent of the industry's assets.
- There's a range of experience among the teams charged with asset allocation for 529 plans' age-based options. Some plans leverage target-date retirement managers; in fact, the target-date retirement teams from American Funds, Fidelity, J.P. Morgan, T. Rowe Price, and Vanguard collectively managed nearly 50 percent of 529 plan assets as of Dec. 31, 2015. Meanwhile, other plans use less-experienced asset allocators.
- Plans with age-based options that boast a higher average Morningstar Rating™, which is a quantitative, risk-adjusted performance measure, generally have more competitive fee structures or stronger underlying strategies. Among both direct- and advisor-sold 529 plans, more aggressive age-based tracks have delivered the best total returns and more conservative tracks have lagged during the past six years, as a result of the recent equity bull market.
- Age-based 529 plan portfolios tend to take on less risk and tread more lightly in less common asset classes, such as high-yield bonds and commodities, as compared with target-date funds.
- Approximately 80 percent of 529 plans use a static asset allocation glide path, which is the systematic shift of a portfolio's asset mix of stocks and bonds. Static glide paths change their equity and bond allocations more abruptly than progressive asset allocation glide paths, courting market-timing risk.
Morningstar's annual 529 plan study is available here and in Morningstar DirectSM Cloud, the company's web-based investment analysis platform for professional investors. The report also includes a guide for selecting a 529 plan, and is a companion piece to the Morningstar Analyst Ratings for 529 College-Savings Plans, typically issued in October. Additional information and state-by-state comparisons can be found in the Morningstar.com 529 Plan Center at http://529.morningstar.com/state-map.action. An article summarizing the study's findings is available here. Morningstar will host a webinar on Wednesday, June 8 at 3 p.m. CT; to register, please click here.
Morningstar's 529 plan research and data is also available through Morningstar® Advisor WorkstationSM and Morningstar OfficeSM, its software platforms for financial advisors, as well as Morningstar DirectSM.
Morningstar analysts cover 63 529 plans, representing 93 percent of college-savings plan assets. The Morningstar Analyst RatingTM for 529 plans, expressed as Gold, Silver, Bronze, Neutral, or Negative, is a forward-looking, qualitative rating that represents Morningstar's conviction in the plans' abilities to outperform their relevant benchmark and peer groups on a risk-adjusted basis over the long term. Analysts evaluate five pillars—People, Process, Parent, Performance, and Price—to arrive at a rating.
Morningstar has approximately 115 manager research analysts worldwide who cover approximately 4,000 funds. The company provides data on approximately 202,000 open-end mutual funds, 10,000 closed-end funds, 13,500 exchange-traded product listings, and 4,500 state-sponsored college savings plan portfolios, as of March 31, 2016.
About Morningstar, Inc.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offers an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. Morningstar provides data on approximately 525,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on nearly 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $180 billion in assets under advisement and management as of March 31, 2016. The company has operations in 27 countries.
Analyst Ratings are subjective in nature and should not be used as the sole basis for investment decisions. Analyst Ratings are based on Morningstar analysts' current expectations about future events and therefore involve unknown risks and uncertainties that may cause Morningstar's expectations not to occur or to differ significantly from what was expected. Morningstar does not represent its Analyst Ratings to be guarantees nor should they be viewed as an assessment of a fund's or the fund's underlying securities' creditworthiness. This press release is for informational purposes only; any mention of a specific 529 college-savings plan should not be considered a solicitation by Morningstar.
©2016 Morningstar, Inc. All rights reserved.
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SOURCE Morningstar, Inc.