CHICAGO, Oct. 25, 2010—Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today issued its newly enhanced study of 529 college savings plans, based on a complete evaluation and analysis of 53 of the nation's largest 529 plans.
This year’s study includes new analyst ratings and reports along with quantitative ratings, which represent Morningstar’s most comprehensive effort to date to provide research and analysis into these popular investment vehicles. This is the seventh year that the company has reviewed 529 plans, but for the first time, Morningstar is now providing ratings on plans as well as the investment options contained within them, setting a new standard for depth and breadth of 529 plan research.
New Morningstar Analyst Ratings and Research on 529 Plans
To help college savers and financial advisors select the best 529 plans, Morningstar has introduced new Morningstar Analyst Ratings and Reports on 53 of the largest plans, covering more than 90 percent of the $119 billion in U.S. 529 plan assets.
The Morningstar Analyst Ratings give those saving for their child’s college education a comprehensive assessment of an entire 529 plan. To determine a plan's Analyst Rating, Morningstar's mutual fund analysts consider five factors: the quality of the portfolio of investment options; the investment options' performance; the skill of the options' managers; the stewardship practices of the 529 plan's program manager; and the costs associated with the plan. Plans are then assigned ratings of “Top,” “Above Average,” “Average,” “Below Average,” and “Bottom.”
Five plans received “Top” Morningstar Analyst ratings this year. They are (in alphabetical order by state): Alaska’s T. Rowe Price College Savings Plan, managed by T. Rowe Price; Maryland College Investment Plan, managed by T. Rowe Price; Nevada’s The Vanguard 529 Savings Plan, managed by Upromise; Ohio’s CollegeAdvantage 529 Savings Plan, managed by OTTA; and Virginia’s CollegeAmerica, managed by American Funds.
"The 529 plans receiving a ‘Top’ rating incorporate the industry's best practices, including solid investment choices at a fair price," said Laura Pavlenko Lutton, editorial director in Morningstar's Fund Research Group and an author of the study.
In addition, 15 plans received “Above Average” ratings, 29 plans received “Average” ratings, three plans were rated “Below Average,” and one plan received a “Bottom” rating. The full list of Analyst Ratings for each of the 53 plans is here: http://global.morningstar.com/529PlanRatingsChart2010.
“We're not confident in the plans rated ‘Below Average’ and ‘Bottom,’” Lutton said. “Their investments aren't very compelling, and many plans' fees are too high."
New Quantitative Morningstar Rating for 529 Investment Options
In addition to the Morningstar Analyst Ratings and Research for 529 Plans, Morningstar also released new quantitative, proprietary data designed to help investors better compare more than 4,000 different 529 investment options. Specifically, Morningstar grouped 529 investment options into categories and compared their past risk-adjusted performance to arrive at a Morningstar Rating (better known as the "star rating") for individual investment options.
"Because 529 plans are offered by individual states, it's difficult to compare them and feel confident that you're making a smart decision with your college-savings dollars," Lutton said. "Morningstar's Analyst Ratings for 529 plans will help investors quickly identify best-in-class plans, and from there, parents, grandparents, and financial advisors can use Morningstar's quantitative ratings and data to compare investment options' performance, fees, and asset allocation."
Both enhanced ratings and reports will provide a broad and thorough new resource for financial advisors looking to recommend 529 plan options to their clients. Advisors and institutions that subscribe to Morningstar® Principia®, Morningstar® Direct(SM), and Morningstar® Office will have exclusive access to Morningstar 529 College Savings Plan Ratings and Reports, which include Morningstar's 529 plan and investment option ratings, risk and return ratings, as well as the asset-allocation paths of investments for parents targeting a broad range of enrollment dates for their children. The reports and data are also available through Morningstar Licensed Data feeds. The 529 plan ratings and reports are also available for advisors who subscribe to Morningstar® Advisor Workstation(SM).
Individual investors who subscribe to Morningstar.com will have access to a new interactive 529 Plan Center, which houses the Morningstar Analyst Ratings for 529 College Savings Plans, accompanying analyst reports, and data on the plans' investment options.
2010 529 Industry Research Paper
To accompany these new ratings and reports, Morningstar also released a comprehensive study of the 529 industry. In the 2010 529 College Savings Plans Research Paper and Industry Survey, Morningstar compared the performance and fees of 529 investment options and quantified the tax benefits associated with each state's 529 plans.
Morningstar found that even though 529 plans are on average more expensive than mutual funds, tax incentives and strong investment management make them compelling vehicles for college savings.
"As 529 plans have cut their fees and improved their investment choices, they've become much more appealing," Lutton said. "But some plans are stronger than others, and investors still need to weigh their options carefully."
The full survey white paper is located here: http://global.morningstar.com/2010529Survey. A summary of the survey is also available in Lutton’s Fund Spy column, available on Morningstar.com at: http://www.morningstar.com/goto/top529.
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 approximately 360,000 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 21 countries.
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