Conservative allocation options in 529 plans have gained the most in asset flows during the first nine months of 2011 among Morningstar’s static-allocation categories. Virginia had the most 529 plan assets of any state, with more than $29 billion in its adviser-sold and direct-sold plans.
Open architecture plans—which include a variety of asset managers’ funds in their offerings—did not have a consistent performance edge during the past year over “closed architecture” plans, which feature just a single firm’s portfolio strategies.
Categories of 529 investment options slightly trailed their open-end fund counterparts over the past five years as of September 30, 2011, but the lead has changed hands in the midst of heightened market volatility. Several 529 categories led their corresponding open-end fund categories just two months earlier.
The tax benefits of a 529 plan improve returns for investors relative to similar mutual funds, which can add up to significantly higher returns over the long term.
This is the eighth year that Moringstar has reviewed 529 plans. To access the full Morningstar 529 College Savings Plans Research Paper and Industry Survey, visit http://global.morningstar.com/529Survey2011.