Virginia inVEST 529 Plan Earns Top Marks

The following is our latest Analyst Report for Virginia inVEST 529 college savings plan. Morningstar Premium Members have access to full analyst reports such as this for 63 college savings plans, and more than 1,000 of the largest and best mutual funds. Not a Premium Member? Gain full access to our analyst reports and advanced tools immediately when you try Morningstar Premium free for 14 days.

A notable fee reduction in 2016 adds to Virginia inVEST's already strong appeal. The plan reduced its program management fee to 0.10% from 0.15% in July 2016. That reduction, paired with a move to cheaper share classes for two underlying funds earlier in the year, made the age-based funds' fees attractively priced, particularly given their significant use of actively managed strategies. This lifts the plan's Price rating to Positive. Combine the low fees with a thoughtful approach and strong underlying managers, and the plan readily earns its Morningstar Analyst Rating upgrade to Gold from Silver.

The plan complements the traditional stock and bond funds found in its single age-based track with specialty asset classes not often found in direct-sold 529 plans. These diversifiers include dedicated exposure to emerging markets (equity and debt), stable value, and global REITs. The plan also follows a sensible approach in blending active and passive management within the age-based funds and the three newly launched active static-allocation portfolios. Those options hold passive strategies in broad asset classes, such as U.S. large-cap equity and core bond, and active managers in niche asset classes, including high-yield bonds and emerging-markets equity. This balance keeps costs in check while retaining the potential for outperformance.

Gold- and Silver-rated Vanguard funds provide passive exposure. On the active side, international equity stands out with exposure to Gold-rated American Funds EuroPacific Growth, Silver-rated Aberdeen Emerging Markets, Silver-rated DFA Emerging Markets Core Equity (added in 2016), and Bronze-rated Templeton Foreign Equity. The underlying funds not rated by Morningstar are run by established firms.

The plan's encompassing approach has delivered over the long run, as each age-based fund topped its custom benchmark since inception as of August 2016. The heavy use of stable value--an investment only available to institutional clients such as this plan--in the in-college portfolios has proved advantageous compared with plans that use money market funds for capital preservation. While the plan's diversification may curb short-term results at times, its potential to smooth results over the long term remains attractive.

Virginia residents may deduct up to $4,000 of contributions per account from their state income, leaving little reason to look elsewhere. The attractive offerings mean nonresidents may also want to size it up against other plans.