Morningstar Inc., a leading provider of independent investment research (NASDAQ: MORN), today published its annual study of U.S. 529 college-savings plans. The report evaluated 84 U.S. plans, which had nearly $200 billion in total assets under management as of Dec. 31, 2013, a 20 percent increase over Dec. 31, 2012.
“The 529 industry saw admirable growth of 20 percent in 2013. The law of large numbers suggests that the 529 industry’s growth would slow as it matures, but that isn’t necessarily the case. 529 plan assets have also been stoked by stock market gains across the board,” Kathryn Spica, Morningstar senior analyst for fund-of-funds strategies, said. “Diversified options also continue to gain traction among investors. In 2013, as well as in previous years, the categories attracting the most flows are diversified among stocks, bonds, and cash.”
Morningstar analysts evaluated the current 529 college-savings plan market by total assets under management, asset flows by category, assets by state, and plan structure, along with the five pillars of the Morningstar Analyst Rating™—process, performance, price, people, and parent. The report is a companion piece to the Morningstar Analyst Ratings for 529 College-Savings Plans, typically issued in October.
Key findings of the annual study include:
- Although direct-sold plans had been growing at a faster rate than advisor-sold plans and held 51 percent of the industry’s assets in 2012, direct- and advisor-sold plans experienced nearly even growth in 2013 and now have similar asset balances. Advisor-sold plans had approximately $98 billion while direct-sold plans held nearly $102 billion, as of Dec. 31, 2013.
- Of static 529 investment options, those offerings diversified among stocks, cash, and bonds gained the most in new flows. Options in the Static Conservative Allocation category took in approximately $890 million in 2013, the highest in terms of new asset flows by category.
- Two bond peer categories had net outflows—U.S. Government and Intermediate Bond. Withdrawals in these categories may reflect families tapping into their 529s for college expenses, but also may reflect concerns about rising interest rates.
- Some plans that market their investments outside their home state’s borders have attracted significant assets. At more than $46 billion, Virginia’s 529 plans continue to have the most assets under management by a wide margin. Virginia's CollegeAmerica 529 plan is the nation's largest, with just more than $44 billion in assets under management, and is distributed nationally through advisors who use CollegeAmerica’s program manager, American Funds, in their clients' portfolios. Similarly, Nevada and Utah have disproportionately large assets under management relative to their populations, but both are home to 529 plans that are marketed nationally. Both states are among the top 10 in terms of 529 plan assets under management.
- The industry's average “glide path” for age-based tracks, in which asset allocation changes over time and becomes less concentrated in equities as the beneficiary gets older, has slightly shifted since Morningstar first began publishing glide path data for 529 plans in 2010. Today, the average glide path has slightly less equity exposure at the earliest stages and slightly more equity exposure in the middle years. Overall, the typical age-based track starts with an 80 percent allocation to stocks and gradually cuts that exposure to 10 percent at the age of enrollment.
- Performance comparisons of “closed architecture” plans, which include investment options with underlying investments from a single provider, versus “open architecture” plans, which include investment options with underlying investments from a number of providers, show narrow differences and little clarity about the advantages of either approach.
Morningstar’s 529 plan landscape study is available online. Additional information and state-by-state comparisons can be found in the Morningstar.com 529 Plan Center.
Morningstar’s 529 plan research and data also is available through Morningstar® Advisor WorkstationSM and Morningstar OfficeSM, its software platforms for financial advisors; and Morningstar DirectSM, its global investment analysis platform for institutional investors.
Morningstar has approximately 110 manager research analysts worldwide who cover approximately 4,300 funds and exchange-traded funds (ETFs). The company provides data on approximately 160,200 open-end mutual funds, 7,400 closed-end funds, 10,700 exchange-traded funds, and 4,600 state-sponsored college savings plan portfolios, as of March 31, 2014.