West Virginia’s 529 college savings investment plan drops all China-based companies in investment portfolio

17 April 2024- State Treasurer Riley Moore, who serves as Chairman of the Board of Trustees of the West Virginia College and Jumpstart Savings Programs, today announced the Board has adopted his proposal to transition the emerging markets investment option in the SMART529 Select Plan to a fund that excludes investments in China-based companies.

The decision was made following a lengthy period of study which determined the move away from Chinese investments would be in the best financial interests of plan participants.

“We have a fiduciary duty to act in the best financial interests of SMART529 plan participants, and we believe excluding Chinese emerging market investments from our Select Plan portfolio will help maximize returns while reducing exposure to the potential regulatory and geopolitical risks that come with investing in companies based in China,” Treasurer Moore said. “I’m grateful to the Board members for carefully considering this recommendation to reduce exposure to these more risky Chinese investment options.”

The SMART529 Select Plan is a nationally available 529 college savings plan with underlying funds advised and actively managed by Dimensional Fund Advisors LP (DFA). With $667 million in assets under management as of Dec. 31, 2023, the Select Plan offers participants nine age-based and 10 static portfolios from which to choose. Emerging markets investments make up between zero to 10 percent of those funds, based on their risk profile.

The Select Plan had been using the DFA Emerging Markets Core Equity Portfolio (ticker: DFCEX), which includes China, as an underlying component of its age-based and static portfolios.

Beginning in late 2021, Treasurer Moore initiated preliminary discussions with SMART529 investment managers and consultants to explore the possibility of moving SMART529 funds away from Chinese investments. Around the same time, Dimensional Fund Advisors had also created a new Emerging Markets Ex-China Core Equity Portfolio Fund (DAADX), which does not include investments in Chinese-based companies.

Earlier this year, Dimensional Fund Advisors presented board members with an analysis showing the ex-China fund not only outperformed the traditional emerging markets fund since its inception, but also presented a simulation dating back to 1994 showing that the ex-China fund would have outperformed the traditional fund across that time period as well.

In addition to the outperformance, SMART529 investment consultant NEPC, LLC advised board members that “ongoing geopolitical tensions between China and the U.S.” along with China’s tendency to quickly shift domestic policies offered significant investment risks.

“China’s domestic policies can create periods of heightened volatility and it is possible that ongoing tensions could increase and negatively impact Chinese stocks,” NEPC said in a report submitted to the Board.

“This decision is in the best long-term financial interests of those individuals who choose to invest in a SMART529 Select Plan and the children whose educational future benefits from these funds,” Treasurer Moore said.

SMART529 is a qualified tuition program issued by the Board of Trustees of the West Virginia College and Jumpstart Savings Programs and administered by Hartford Funds.