Morningstar Study of 61 of the Largest 529 College-Savings Plans Spurs Shakeup of Ratings with New Methodology Enhancements

CHICAGO, Oct. 27, 2020 /PRNewswire/ -- Morningstar, Inc. (Nasdaq: MORN), a leading provider of independent investment research, today announced updates to the Morningstar Analyst Ratings™ for 61 of the nation's largest 529 college-savings plans, which represent approximately 97% of the more than $363 billion in 529 plan assets as of Aug. 30, 2020. The qualitative Analyst Rating has five tiers—Gold, Silver, Bronze, Neutral, and Negative. This year, Morningstar manager research analysts awarded three Gold ratings, 10 Silver ratings, 22 Bronze ratings, 18 Neutral ratings, and eight Negative ratings to 529 college-savings plans.

"The college-savings plan industry is maturing. Asset growth is slowing, and 529 plans are increasingly having to cut costs to stay competitive," said Madeline Hume, manager research analyst on Morningstar's multi-asset and alternative strategies team. "Investment quality has improved, and a number of plans have enhanced their asset-allocation approach to smooth the transition from stocks to bonds over time. These trends should continue to benefit investors."

"We also enhanced our ratings methodology, placing greater weight on our Price assessment. Consequently, we downgraded the ratings of numerous advisor-sold plans that tend to charge higher fees. On the flipside, we upgraded the ratings of various direct-sold plans that charge lower fees," said Hume.

In 2020, Morningstar analysts upgraded 12 plans and downgraded 15 plans. Morningstar also initiated coverage on three plans, while ceasing coverage on four:

The Morningstar Analyst Rating for 529 plans gives investors saving for a child's college education a tool to help comprehensively assess 529 plan options. To determine a plan's rating, Morningstar analysts assess four factors: the design of the plan's investment options; the plan's underlying money managers and the investment manager(s) that compiles these investments into portfolios; the stewardship practices of the plan's state trustee and its other partners; and the value of the plan's investment options compared with those of its peers. Analysts assign Gold, Silver, or Bronze ratings to plans they've concluded will likely offer investment options that outperform and a strong investment experience for college savers. This means the analyst's evaluations consider not only performance but less-tangible considerations that can affect investor outcomes and influence a plan's rating, such as offering an easy-to-navigate investment menu. They assign Neutral ratings to plans they don't expect to outperform and Negative ratings to those that are suffering from at least one major flaw.

In July 2020, Morningstar announced it was enhancing the methodology for the Morningstar Analyst Rating for 529 plans. The enhancements simplify the overall framework, streamline the pillar assessments, and make the overall ratings more useful by developing a more encompassing assessment and stripping out state tax benefits from the evaluation. A summary of those enhancements is available here.

Today, Morningstar published a Fund Spy article on Morningstar.com, with a full list of the ratings and key insights from this year's assessment. The article is available here.

Additional Resources
In May 2020, Morningstar published its latest 529 Landscape Report, which examines key industry developments and improvements. The report also covers 529 industry trends including industry growth and recent expansions of tax benefits as well as the impact of the market selloff and subsequent rebound in the first half of 2020.

Visit "Special Report: 529 College Savings Plans" on Morningstar.com to learn more about the pros and cons of 529 plans, how to choose a college-savings account, and how these investments performed during the market downturn.

The research and ratings are also available in Morningstar® Advisor Workstation^SM, Morningstar Office^SM, and Morningstar Direct^SM, the company's core investment research and analysis platforms. Morningstar® ByAllAccounts^SM aggregates data from more than 80 529 college-savings plans and delivers it to portfolio accounting platforms. Morningstar also offers a series of 529 college-savings plan indexes. More information is available at http://www.morningstar.com/company/.

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, retirement plan providers and sponsors, and institutional investors in the debt and private capital markets. Morningstar provides data and research insights on a wide range of investment offerings, including managed investment products, publicly listed companies, private capital markets, debt securities, and real-time global market data. Morningstar also offers investment management services through its investment advisory subsidiaries, with approximately $205 billion in assets under advisement and management as of June 30, 2020. The Company has operations in 27 countries as of June 30, 2020. For more information, visit www.morningstar.com/company. Follow Morningstar on Twitter @MorningstarInc.

Morningstar's Manager Research Group consists of various wholly owned subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC. Morningstar Analyst Ratings are based on Morningstar's Manager Research Group's current expectations about future events and therefore involve unknown risks and uncertainties that may cause such expectations not to occur or to differ significantly from what was expected. To expand the number of funds that Morningstar covers, Morningstar developed the Morningstar Quantitative Rating in 2017, which uses a machine-learning model to emulate the decision-making processes of Morningstar's Manager Research Group's past ratings decisions, and the data used to support those decisions. The machine-learning model is applied to the "uncovered" fund universe and creates the Morningstar Quantitative Rating, which is analogous to the rating an analyst might assign to the fund if an analyst covered the fund. Morningstar Analyst Ratings and Morningstar Quantitative Ratings are subjective in nature and should not be used as the sole basis for investment decisions. Morningstar Analyst Ratings and Morningstar Quantitative Ratings are not guarantees nor should they be viewed as an assessment of a fund's or a fund's or separately managed account's underlying securities' creditworthiness. This press release is for informational purposes only; references to securities or a separately managed account investment strategy in this press release should not be considered an offer or solicitation to buy or sell the securities or to invest in accordance with that strategy.

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Media Contact:
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SOURCE Morningstar, Inc.

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