CHICAGO, April 23, 2009—Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today issued its sixth annual study of the best and worst 529 plans. Morningstar is releasing the study, along with articles and videos about a variety of college savings issues, today on Morningstar.com®.
`2008 was a terrible year for 529 plan investors,` said Greg Brown, Morningstar mutual fund analyst and author of the study. `In recent years, the industry made strides by lowering fees, improving investment options, and closing down poorly structured plans. Last year, however, we saw too many plans that were overly aggressive with their investment strategies as students approached college, and plans that stayed loyal to strategies that just weren`t working.`
Morningstar`s annual study of 529 plans focuses on several areas: the underlying funds, expenses, diversification, asset allocation, and flexibility. Morningstar evaluates the quality of the underlying investments by looking for funds with experienced managers, a history of good stewardship, and sensible strategies. Low expenses, which Morningstar has found to be among the best predictors of a mutual fund`s long-term success, are essential. Morningstar analysts look for diversification across the major asset classes as well as an allocation between stocks, bonds, and cash that is appropriate for the students` ages. Morningstar also likes to see flexibility for investors with different needs, time horizons, and levels of risk tolerance, including age-based options with differing levels of risk and fixed-allocation offerings in which the level of stocks, bonds, and cash do not change over time.
Best 529 College Savings Plans
Name, Program Manager
Ohio CollegeAdvantage, Ohio Tuition Trust Authority
Utah Educational Savings Plan Trust, UESP Trust
Indiana CollegeChoice 529 Direct Savings Plan, Upromise Investments, Inc.
Virginia Education Savings Trust, Virginia College Savings Plan Board
Virginia CollegeAmerica 529 Savings Plan*, American Funds
Worst 529 College Savings Plans
Name, Program Manager
Ohio Putnam CollegeAdvantage*, Putnam
Nebraska AIM College Savings Plan*, Union Bank and Trust Company
Nebraska State Farm College Savings Plan*, OppenheimerFunds
New Jersey Best 529 College Savings Plan, Franklin Templeton
Montana Pacific Life Funds 529 College Savings Plan, Pacific Life Funds
Virginia`s two plans, Education Savings Trust and CollegeAmerica, have now earned spots on the Best list two years in a row. Virginia Education Savings Trust is managed by the state of Virginia, rather than a fund company, which gives the plan the freedom to choose among different fund families. The fund also offers a mix of index and actively managed age-based portfolios, as well as healthy state tax breaks and low costs. Virginia CollegeAmerica returns to the Best list with its lineup of high-quality American Fund funds with broad asset class exposure and low fees.
Ohio`s two plans are at opposite ends of the spectrum—its direct-sold CollegeAdvantage plan is on the Best list because of its sensible age-based options, active and index strategies, low fees, and generous tax deductions for in-state residents. Like Virginia`s Education Savings Trust, the state of Ohio manages CollegeAdvantage, giving it the flexibility to create a lineup of offerings from numerous fund families. Ohio`s other plan, Putnam CollegeAdvantage, appears on the Worst list for the second year in a row. Despite lowering fees and adding non-Putnam funds to its lineup during the past year, it still relies heavily on Putnam funds, which have been hampered for several years by high manager and executive turnover and poor performance.
Longtime Morningstar favorite Utah Educational Savings Plan Trust returns to the Best list for its low costs, strong lineup of Vanguard index funds, and the flexibility offered by five age-based options that allow investors to invest according to their risk tolerance. Indiana CollegeChoice 529 Direct Savings Plan debuts on the Best list with strong underlying funds, broad asset class exposure, prudent age-based portfolios, and customization options.
Two Nebraska 529 plans appear on the Worst list this year. Nebraska AIM College Savings Plan makes its fourth appearance in a row as a result of its high fees and lack of fund options. Nebraska State Farm College Savings Plan joins the Worst list not only because plan administrators chose precisely the wrong time to invest heavily in Oppenheimer bond funds, but also because the state still hasn’t done anything to address the problem.
New Jersey Best 529 College Savings Plan is on the Worst list for several reasons, chief among them an overly aggressive age-based option that doesn’t adjust enough for students nearing college. High fees cement the plan`s place on the Worst list. Montana Pacific Life Funds 529 College Savings Plan rounds out the Worst list with expensive but average underlying funds and no age-based options.
`Investors should carefully examine their options before choosing a 529 plan. For example, states usually offer tax deductions for in-state residents, but the value of that tax incentive might be outweighed by other factors. The in-state plan might have high expenses, or a poorly constructed portfolio,` Brown said. `The broad disparity of 529 plan performance in 2008 illustrates how important it is for investors to do their homework before choosing a plan.`
For Morningstar’s complete 529 plan study, please visit:
For additional resources on 529 plans, please visit:
Morningstar’s Guide to College Savings
529s: Stay in State or Shop Around
529 Plan Alternatives
Managing Your 529 Plan
529 Prepaid Plans: All They’re Cracked Up to Be?
Prioritizing Retirement and College Savings
Is Your 529 Plan a Lemon?
Why Some 529s Took a Hit
States: The 529 Flaw
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 Internet, software, and print-based products and services for individuals, financial advisors, and institutions. Morningstar provides data on more than 300,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 4 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. The company has operations in 19 countries and minority ownership positions in companies based in three other countries.
This press release and accompanying study should not be construed as a recommendation or be used as the sole basis for making an investment decision. Investors should consider all relevant factors, including their specific personal and financial situation, before investing. Morningstar encourages investors to consult with their financial professional in making an investment decision. Past performance is not a guarantee of future results.
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