Morningstar Advisor - June/July 2011 - (Page 49)

Spotlight Researching 529 Plans Made Easy By Christina West How to use Morningstar’s new data to find the most appropriate options for clients. Analyzing 529 plans and their investment options for clients can be daunting, but new data and tools available in Morningstar Office make the task approachable. Advisors now have all the plan-level data necessary to determine whether an option is suitable for a client, and they can screen for plan investment options in similar ways that they shop for mutual funds. Look Home, First Exhibit 1 Tax Deduction: In Morningstar Office, advisors can check for any tax breaks offered by investors’ home-state plans. It’s important first to take a look at the client’s home-state plans to understand the potential tax breaks or other perks (such as Maine’s $500 grant for newborns signed up before their first birthday). Using data in Morningstar Office, advisors can check whether the client’s home state offers tax deductions on contributions and whether those deductions are portable to plans outside of the home state (Exhibit 1). A plan from any state nationwide may be appropriate depending on the tax benefits and the client’s circumstances. Then Head for the Top Exhibit 2 Bird’s-Eye View: Morningstar’s 529 plan reports feature the analyst’s opinion and an overview of the plan’s structure, performance, and fees. Dat th D ta through 04-18-2011 | F Fi h 18 2011 For Financi l P ofessionals O l ial Pr f i l Only Whether a client is staying in-state or looking nationally, advisors will want to start zeroing in on the highest-quality plans. Morningstar now provides analyst ratings on 54 of the largest 529 plans, representing more than 90% of the industry’s assets. Morningstar’s analysts have acquired an in-depth understanding of the investment lineups through bottom-up research on the individual funds that make up the 529 portfolios. Analysts also know many CollegeAdvantage 529 Savings Plan Morningst Analys Rating Morningstar Analyst Rating g y g Top Above Average Average Average Below Average Bott Bottom B ttom Analy is by Jo h Charlson 10-22-2010 Analysis by Josh Ch rlson 10 22 2010 lys l The Ohi CollegeAdvantag 529 Saving Pla has reshaped The Ohio CollegeAdvantage 529 Savings Plan has reshaped itself int compellin choice itself into a compelling choice. Thi pla has mad som sweepi impro ements ove This plan has made some s eeping improvements o er l ing the pas two years. Prior to 2009, the pla was saddle by the past two years. Prior to 2009, the plan was saddled by a confusing and redundant arra of options, highe expenses, confusing and redundant array of options, higher expenses, fusin dundan ray tions gher penses and poor performance by existing Putnam funds (which have p rp y since been axed). Beginning in 2007, however, the Ohio Tug g itio Trust Authority which act as bot pla sponso and ition Trust Authority, which acts as both plan sponsor and program manager, hired Wilshire Consulting, an experience instit tiona invest enced institutional investment consult nt to monitor and tituti tmen consultant, to nito and t it manage some plan services. l i Wit Wil hire' guid With Wilshire's guidance, CollegeAdvantage has lshi idance, Coll geAd Advantag has streamli d i li lined its lineup, providi a mix of passive and actiding i f i d ively managed options, strong underlying managers, and a competitive fee structure. The Age Based tracks run by Van p titiv fee struct t ture The Age-Based tracks run by Vank guard are very similar to those found in other 529 plans. They are built around a relatively straightforward core set of indexed asset classes and are run by Vanguard's seasoned asset-allocation team; these investments have shown relatively strong performance during the past ﬁve years. Plan Options p Age-Based Tracks: 4 g Ba Track Based acks: Static Portfolios/Funds: Static Portfolios/Funds: 17 rtfolios/Fun 100% Issuing State g Ohio Ohio Equity Allocation % i All i for A e-Based Tracks Ag B d T k 75 50 25 0 100 90 75 50 82 1 100 90 75 50 82 2 100 90 75 50 81 3 100 90 75 50 79 4 100 90 75 50 78 5 100 85 75 50 70 6 75 85 50 25 68 7 75 85 50 25 65 8 75 85 50 25 60 9 75 85 50 25 58 10 75 75 50 25 50 11 50 75 25 0 45 12 50 75 25 0 41 13 50 40 25 0 40 14 50 40 25 0 33 15 50 40 25 0 26 16 25 40 0 0 23 17 25 10 0 0 16 18 19 25 0 10 10 0 0 0 0 11 11 0 Child' Age Child's A Age-Based Aggressive g Based gg ssive Advant Advantage Age-Based antage Age Based e Base Age-Based Moderate g Age-Based Conservative g Industry Averag Industry Average y g Plan Option Overview 03-31-2011 p Opti Name O tion N Overall Overall Star Rati St R ting Current Underlying Current Underlying Total Total Equit E ity % F d F s% Fees % Fund Fee % Total Total Rtn Rt % YTD Cat Rank R k% Total Total Rtn Rt % 3-Year Cat Rank R k% Total Total Rtn Rt % 5-Year Cat Rank R k% Age-Based Aggressive OH C ll Adv Vanguard Aggressive 0-5 Coll dv Col Ad Vangua d Aggres i g gg 5 OH Coll Adv Vanguard Aggressive 6-10 OH Coll Adv Vanguard Aggressive 11 15 11-15 OH Coll Adv Vanguard Aggressive 16-18 OH Coll Adv Vanguard Aggressive 19+ Advantage Age-Based QQQ QQQQ QQQ QQQQQ QQQQQ 99.15 99 15 74.50 50 22 50.22 25.26 0.00 0.04 0 04 0.04 0 05 0.05 0.06 0.08 0.23 0 23 0.23 0 24 0.24 0.25 0.27 5.67 5 67 4.36 2 96 2.96 1.61 0.60 19 46 2.33 2 33 3.70 40 25 2.68 2 68 4.03 35 17 22 4 50 4.50 20 4 75 4.75 19 MorningstarAdvisor.com 49 87 4.90 12 5.25 7 11 3.50 13 4.93 7 http://www.MorningstarAdvisor.com

Table of Contents for the Digital Edition of Morningstar Advisor - June/July 2011

Morningstar Advisor - June/July 2011
Contents
Contributors
Letter From the Editor
Questions for the Secret Society
Are 529 Plans a Useful Tool for Clients’ College-Savings Goals?
Taking the Lead
How to Sell Covered Calls
The College-Savings Challenge
Time to Play Defense?
Four Picks for the Present
Investment Briefs
Careful What You Wish For
Caution in Utilities After Japan Crisis
Blossoms and Thorns in the 529 Garden
Lower Fees, Competitive Returns Help More 529s Make the Grade
Morningstar Grades 529 Plans
529 Risks Include the Political
Researching 529 Plans Made Easy
How Closed-End Funds Are Born
Boutique Within a Bank
The Inefficient Pricing of Moats
More Steak Than Sizzle
Mutual Fund Analyst Picks
50 Most Popular ETFs
Undervalued Stocks With Wide Moats
The Dangers of Demonizing

Morningstar Advisor - June/July 2011