Paul Curley Director of Savings Research, ISS Market Intelligence
Paul Curley, CFA, is Director of Savings Research at ISS Market Intelligence. He oversees 529 and ABLE market data, research, events, and digital products and services for institutional clients, including the annual 529 Conference. He authors weekly, quarterly, and annual business intelligence publications on the college financial planning and ABLE market. Before joining ISS Market Intelligence in 2008, Curley worked at Loomis, Sayles & Company, L.P. as a fixed income operations analyst. He holds the Chartered Financial Analyst (CFA®) designation and is a member of the CFA Institute.
Demand for ETFs in 529 college savings plans has been on the rise in recent years, an important indicator as these plans seek to attract additional investors.
According to proprietary data, research, and analysis from ISS Market Intelligence, demand for ETFs among parents who enrolled in a 529 with the support of an advisor increased from 15% in 2017 to 23% in 2020 (see Exhibit 1).1 The takeaway is that more parents are selecting 529 plans based on whether they offer ETFs in their investment lineup.
More generally, demand by advisors for ETFs in 529s has been on the rise overall from 2009 to 2020 (see Exhibit 2).2 Additionally, demand has increased each year from 35% in 2018 to 45% in 2020. Overall, ISS Market Intelligence would characterize the advisor demand as stable and broadly rising. Taking the parent and advisor perspective together, we characterize demand of ETFs in 529s as steadily increasing in demand.
ETF USAGE ACROSS US
ETFs continue to grow as a percentage of investable assets in the broader US financial service industry, increasing from 0% in 1992 to 23.5% in 2020.3 Looking specifically at 529 plans, ETFs account for only 1.5% of assets. But the percentages are higher when looking at different metrics: 3.8% of net sales and 2.3% of gross sales as of the fourth quarter of 2020.4
By investment type, ETFs account for a respective 1.6%, 1.4%, and 1.6% of assets in age-based, asset allocation, and individual options among 529 plans. And when it comes to the number of investment positions, ETFs account for a respective 3.0%, 3.1%, and 4.8% of 529 age-based, asset allocation, and individual investments.
Last but not least, when comparing the historical growth of ETFs to that of other product structures—such as 529s—the broad success of ETFs is clear (see Exhibit 3A and 3B). This success suggests that defined contribution programs (including 529s) can gather momentum and assets by incorporating ETFs into their investment lineups.
LOOKING AHEAD
As of the first quarter of 2021, 15% of 529 plans (14 out of a total of 93) offer 277 ETF investment options. But ETF usage in 529s still has an optimal opportunity to expand to better align with the overall US financial service industry, given the product structure’s transparency, flexibility, pricing structure, and liquidity. ISS Market Intelligence projects a steady long-term increase in usage. More state agencies and product providers may accept ETFs in their lineup in an effort to optimize outcomes for families looking to save—and save efficiently.
1. “529 Distribution Analysis Report,” ISS Market Intelligence (January 2021). 2. “529 Distribution Analysis Report,” ISS Market Intelligence (January 2021). 3. ISS Market Intelligence; excludes funds of funds, closed-end funds, and money market funds. 4. ISS Market Intelligence 529 market data analysis.
Dimensional Fund Advisors LP (“Dimensional Fund Advisors”) is an investment advisor registered with the Securities and Exchange Commission. This article is distributed for informational purposes only and should not be considered investment, tax, or legal advice or an offer of any security for sale.
The views and opinions of the third-party authors do not necessarily represent the views of Dimensional Fund Advisors. Dimensional Fund Advisors makes no representations as to the accuracy of, and assumes no duty to update, the information provided herein
There is no guarantee investment strategies will be successful, and it is possible to lose money. Risks include loss of principal and fluctuating value.
Dimensional does not offer, sell, or distribute 529 college savings plans. This information is for educational purposes only and should not be considered investment advice or an offer of any security for sale. It should not be misconstrued or otherwise interpreted as legal or tax advice.
Please consult with qualified legal or tax professionals regarding your individual circumstances. For more information about any 529 college savings plan, contact the plan provider to obtain more information and carefully consider the plan’s investment objectives, risks, charges, and expenses before investing.
Diversification does not eliminate the risk of market loss. There is no guarantee an investment strategy will be successful. Investing risks include loss of principal and fluctuating value.
ETF Options on the Rise in 529 Plans
Paul Curley
Director of Savings Research, ISS Market
Intelligence
Paul Curley, CFA, is Director of Savings Research at ISS Market Intelligence. He oversees 529 and ABLE market data, research, events, and digital products and services for institutional clients, including the annual 529 Conference. He authors weekly, quarterly, and annual business intelligence publications on the college financial planning and ABLE market. Before joining ISS Market Intelligence in 2008, Curley worked at Loomis, Sayles & Company, L.P. as a fixed income operations analyst. He holds the Chartered Financial Analyst (CFA®) designation and is a member of the CFA Institute.
Demand for ETFs in 529 college savings plans has been on the rise in recent years, an important indicator as these plans seek to attract additional investors.
According to proprietary data, research, and analysis from ISS Market Intelligence, demand for ETFs among parents who enrolled in a 529 with the support of an advisor increased from 15% in 2017 to 23% in 2020 (see Exhibit 1).1 The takeaway is that more parents are selecting 529 plans based on whether they offer ETFs in their investment lineup.
More generally, demand by advisors for ETFs in 529s has been on the rise overall from 2009 to 2020 (see Exhibit 2).2 Additionally, demand has increased each year from 35% in 2018 to 45% in 2020. Overall, ISS Market Intelligence would characterize the advisor demand as stable and broadly rising. Taking the parent and advisor perspective together, we characterize demand of ETFs in 529s as steadily increasing in demand.
ETF USAGE ACROSS US
ETFs continue to grow as a percentage of investable assets in the broader US financial service industry, increasing from 0% in 1992 to 23.5% in 2020.3 Looking specifically at 529 plans, ETFs account for only 1.5% of assets. But the percentages are higher when looking at different metrics: 3.8% of net sales and 2.3% of gross sales as of the fourth quarter of 2020.4
By investment type, ETFs account for a respective 1.6%, 1.4%, and 1.6% of assets in age-based, asset allocation, and individual options among 529 plans. And when it comes to the number of investment positions, ETFs account for a respective 3.0%, 3.1%, and 4.8% of 529 age-based, asset allocation, and individual investments.
Last but not least, when comparing the historical growth of ETFs to that of other product structures—such as 529s—the broad success of ETFs is clear (see Exhibit 3A and 3B). This success suggests that defined contribution programs (including 529s) can gather momentum and assets by incorporating ETFs into their investment lineups.
LOOKING AHEAD
As of the first quarter of 2021, 15% of 529 plans (14 out of a total of 93) offer 277 ETF investment options. But ETF usage in 529s still has an optimal opportunity to expand to better align with the overall US financial service industry, given the product structure’s transparency, flexibility, pricing structure, and liquidity. ISS Market Intelligence projects a steady long-term increase in usage. More state agencies and product providers may accept ETFs in their lineup in an effort to optimize outcomes for families looking to save—and save efficiently.
1. “529 Distribution Analysis Report,” ISS Market Intelligence (January 2021).
2. “529 Distribution Analysis Report,” ISS Market Intelligence (January 2021).
3. ISS Market Intelligence; excludes funds of funds, closed-end funds, and money market funds.
4. ISS Market Intelligence 529 market data analysis.
Dimensional Fund Advisors LP (“Dimensional Fund Advisors”) is an investment advisor registered with the Securities and Exchange Commission. This article is distributed for informational purposes only and should not be considered investment, tax, or legal advice or an offer of any security for sale.
The views and opinions of the third-party authors do not necessarily represent the views of Dimensional Fund Advisors. Dimensional Fund Advisors makes no representations as to the accuracy of, and assumes no duty to update, the information provided herein
There is no guarantee investment strategies will be successful, and it is possible to lose money. Risks include loss of principal and fluctuating value.
Dimensional does not offer, sell, or distribute 529 college savings plans. This information is for educational purposes only and should not be considered investment advice or an offer of any security for sale. It should not be misconstrued or otherwise interpreted as legal or tax advice.
Please consult with qualified legal or tax professionals regarding your individual circumstances. For more information about any 529 college savings plan, contact the plan provider to obtain more information and carefully consider the plan’s investment objectives, risks, charges, and expenses before investing.
Diversification does not eliminate the risk of market loss. There is no guarantee an investment strategy will be successful. Investing risks include loss of principal and fluctuating value.
1/19/2022
https://my.dimensional.com/etf-options-on-the-rise-in-529-plans
Categories
Categories