Investors have returned to the 529 college savings plans market, lured by booming stock market performance and diverse new investment options, according to a new report from AKF Consulting Group, an advisor to the 529 market.
The report, released Thursday, said assets in 529 plans had increased by more than 21% in 2013, the largest growth rate since 2009.
The report’s data were aggregated through a review of official offering documents for 92 plans as of Oct. 15.
AKF reported that the number of 529 savings plans had dropped to 92 from their peak of 94 in March 2012.
At the same time, the number of investment options available to 529 investors increased by 11.2%, as plan sponsors continued to court investors with a mix of conservative, aggressive and “exotic” asset classes.
“With investors finally back in the market for savings, 529 plans are increasingly trying to find investment options that will appeal to the broadest range of investors possible,” AKF managing director Andrea Feirstein said in a statement.
“The new options could also appeal to professional financial advisors who seek to add value for their clients.”
AKF reported that ETF offerings appeared to have peaked for now in 16 of the plans studied, with few ETF-based options created in the last year.
It said the recent halt raised some questions about the perceived value of ETFs within a 529 structure. For one thing, intraday trading offers no advantage in 529 plans, as a 529 investment option is traded like a traditional mutual fund with post-closing NAV.
For another, daily transparency of holdings is diminished by federal restrictions on 529 plan investment options.
However, less conventional ETFs provide diversification benefits in 529 plans, whether they are offered in an asset allocation structure or as a stand-alone option.
According to the report, asset classes such as international equity, emerging markets, real estate and commodities are increasingly becoming important diversifiers in the 529 space.
Today, it said, 529 plans also offer options that include volatility management, anti-terror, socially responsible funds, absolute return strategies, derivatives and sector-specific funds, among others.
The report said these tend to be prevalent in advisor plans, which are designed to provide active management and greater opportunities for professional financial advisors to add value.
The report found that more 529 plans are including duration hedging strategies in their portfoliosin anticipation of a possible interest rate hike in 2015.
An increase in interest rates would particularly affect near-college-age beneficiaries, who typically have the largest exposure to fixed-income investments.
The report found a prevalence of high yield, bank loan and short duration bond funds in a majority of 529 plans.