Profiting From the Long View
Once derided by Wall Street as too stodgy, T. Rowe Price now serves up sexy returns
"The one thing you can say about T. Rowe is that their investment approach seems to be very well managed," says Geoff Bobroff, president of Bobroff Consulting.
And counterintuitive, too. Case in point: the struggling home-building sector. With the continued drop in home prices, shares of home builders have been the absolute worst-performing industry group so far this year, according to Morningstar, with average losses of nearly 19 percent. Yet late last year, Brian Rogers began buying some beaten-down home builders for his Equity Income fund. For example, his fund currently holds small stakes in the home builder D. R. Horton along with Masco, a maker of products for home construction and improvement.
"We're industry agnostic," says Rogers, explaining the fund's philosophy. He notes that his stakes in both companies are small, relative to other holdings in the $26 billion fund, "because we have no idea when the sector is likely to turn." But he's willing to give solid companies that recently met with disappointing news a few years to right their ship.
Drowning in cash. As a business, T. Rowe Price has taken a similarly long-term view. Often, when certain funds do exceedingly well, a torrent of cash rushes into those portfolios, as investors try to get a piece of the action. Yet too much cash flooding into a fund too quickly can often cool down its performance, since it's hard for a manager to put a huge chunk of cash to work effectively all at once.
That's just what happened to T. Rowe Price after the bear market: Investors who were burned by more aggressive fund companies started to pile into several T. Rowe Price portfolios. The company's response to this influx of new money? In the fourth quarter of 2003 and the first quarter of 2004, T. Rowe Price actually closed several funds to new investors in hopes of protecting its existing clients. Those portfolios had accounted for around 40 percent of the company's net mutual fund inflows in 2003.
The company's cultivation of long-standing relationships helps explain why T. Rowe Price has become a leading player in the 401(k) industry. It ranks seventh among companies that run defined-contribution retirement plans, according to Pensions & Investments, an industry trade publication. It was also one of the early entrants into the 529 college savings universe, administering Alaska's and Maryland's plans since the start of this decade.
Of course, none of this is considered sexy in a market fixated on hedge funds and private-equity investments. But that's T. Rowe Price's style. As Morningstar fund analyst Chris Davis puts it: "They don't dazzle you, but their steady-Eddie approach shines over time."
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