Commentary: First quarter 2016 plan performance rankings

http://www.savingforcollege.com/articles/commentary-first-quarter-2016-plan-performance-rankings-941

Each quarter Savingforcollege.com analyzes the investment performance figures for thousands of 529 portfolios and ranks the 529 savings plans from best to worst for one-, three-, five-, and 10-year investment performance. We rank plans that consumers can enroll in directly, as well as those sold through brokers and fee-based financial planners).

In producing our rankings, we compared the reported investment performance of a subset of portfolios from each 529 savings plan. We use a subset because plans vary greatly in their underlying investment options. We use a representative subset of options to compare plans on an apples-to-apples basis. The "performance score" determines the ranking. For more details, please view our methodology.

Top performing 529 plans

For the most part those plans that have performed well continued to perform well. A few outliers such as Virginia529 inVEST and SMART529 WV Direct did not place in the top ten in the three- or five-year periods despite top placement over one- and ten-years. In both cases, though, the plans were just outside their respective top tens.

1Q16 market commentary

As would be expected, 529 plan rankings remained stable over longer periods; five- and 10-year returns as of 3/31/16. However, one-year rankings shifted significantly from their 4Q15 positions due to high market volatility during 1Q16 – specifically, January and February – coupled with the falloff of 1Q15 returns, as the same period one year ago had been quite volatile, as well.

First quarter markets ended relatively flat, but the beginning and end don’t tell the story in the middle, when concerns about oil prices, weak U.S. profit growth, and a lack of confidence in the Fed led to a sharp decline. Indeed, if you just looked at total return for the period, you’d never know the market, using the S&P 500 Index as a proxy, had fallen nearly 22% in five weeks. Fixed income markets fared slightly worse; widening spreads were further evidence to the volatility and anxiety that were pervasive throughout the quarter.

First Quarter 2016 S&P 500 Returns
Source: Yahoo! Finance

529 plan performance was similarly flat in the same first quarter period of 2015 with high intra-period volatility. The minor 0.13% gain in the S&P 500 belies the virtual roller coaster of the equity markets during the period.

First Quarter 2015 S&P 500 Returns
Source: Yahoo! Finance

As a result, we saw huge movements in short-term rankings. Some of the biggest movers in the one-year period:

• The Kansas Learning Quest 529 Education Savings Program went from a rank of 36 up to 20.
• North Carolina’s National College Savings Program rose from 33 to 16.
• Virginia529 inVEST went from a bottom-half one-year return rank of 28 to end in the top-ten at position eight among its peers.
• The University of Alaska College Savings Plan had been in position 39 for its one-year return at the end of 4Q15, but rose to 19 at the end of 1Q16.

At the end of 4Q15, not nearly so many plans changed positions over the one-year period as did in 1Q16 due to lower market volatility and relatively steady market movements. This only serves to reinforce the notion that short-term performance is, generally, less relevant than long-term performance. There are good reasons for investment disclosures including the language, "Past performance is not necessarily an indicator of future returns."

2Q16 expectations

Thus far 2Q16 has been a period of steady growth, and the second quarter of 2015 was less volatile that the first quarter, so it would be reasonable to expect rankings to remain relatively stable for the next quarter. However, with the impending change in program manager in Rhode Island, rankings may be changing in the coming year. A big change in the underlying investments and fee structure of a plan with extensive performance history may have a broad impact on the relative rankings.

You can find the full performance rankings here.