Virginia's CollegeAmerica, the nation's largest 529 savings plan, remains one of the best.
Morningstar recently rolled out enhanced data and analysis on 529 plans, including written reports and qualitative ratings on some of the biggest and best offerings. We screened for Morningstar's top-rated advisor-sold 529 plans, and have included our exclusive analysis of one of them below.
Morningstar Analyst Rating: Top
The success of the advisor-sold Virginia CollegeAmerica plan rests on the quality and depth of the American Funds' lineup of mutual funds to which investors can gain access. Nearly all of American Fund's taxable funds are available, some 23 in all, spanning a wide range of domestic-stock, foreign-stock, and fixed-income offerings.
In American Funds, the Virginia College Savings Plan has partnered with a topnotch steward of investor capital. The firm has built up a strong research-focused culture that has successfully retained and promoted top talent. Often dozens of managers independently run portions of a single fund; this is an unusual approach but it has yielded consistent, risk-aware performance. The investment culture encourages long-term thinking. Moreover, VCSP has displayed an unusual degree of trust in the American Funds, having extended their contract through 2027, so investors in the CollegeAmerica plan can be confident that their savings won't be shuffled around.
All told, nine Morningstar Analyst Picks are represented in the plan, including American Funds AMCAP, Capital Income Builder, EuroPacific Growth, and Income Fund of America. The single most widely owned fund in the plan is the $140 billion Growth Fund of America, a top-quintile performer over the trailing 15 years, though its performance has tailed off recently. Morningstar analysts have expressed some concern about the size of many American funds, but the multimanager team approach appears to effectively combat the potentially weakening effects of asset bloat.
There's no age-based track in this plan, as American strongly believes that building a portfolio is the job of the advisor. Some 40% of CollegeAmerica assets are in American's growth-and-income and equity-income funds, which generally have a mix of stocks and bonds, so it's important for investors to stay on top of overall portfolio allocations. If there's a blemish in the lineup, it's the lack of small-cap offerings; American Funds' sole dedicated small-cap fund, Smallcap World, has failed to match its benchmark.
Finally, fees are eminently competitive here. Expenses on the 529A shares are typically just a few basis points higher than their non-529 counterparts, for example, and are among the cheapest broker-sold offerings in either space. For Virginians (who can deduct as much as $4,000 per year from their state income tax) and out-of-staters alike who work with an advisor to create a customized portfolio, CollegeAmerica is a top choice.