2/14/2011 12:22 PM ET|
The steady star among fund families
Stability predicts good performance, and T. Rowe Price tops Morningstar’s list of its most consistent US fund managers. But global expansion could alter the corporate culture.
T. Rowe Price Group (TROW, news), the nation's sixth-biggest administrator of mutual-fund assets, has a reputation for putting investors' interests first, maintaining a disciplined investment process and consistently posting peer-beating returns.
The Baltimore company has grown without straying from its founding principles. Consistency is the reason the 73-year-old company emerged on top of a Morningstar study of the 30 largest fund companies that considered such metrics as performance, manager ownership, manager retention and average manager tenure.
T. Rowe Price's stability stems from its ability to attract and retain top talent. It's not unusual for investment professionals to spend their entire careers at the company, starting out as analysts or summer interns during business school and ultimately becoming portfolio managers.
Among those who have come up through the ranks are CEO James Kennedy, who came on board as an analyst in 1978, and Brian Rogers, T. Rowe's chief investment officer, who has run the T. Rowe Price Equity Income (PRFDX) fund since its 1985 inception.
When a manager change does occur, it's typically due to a retirement. Retirements are often announced well in advance, allowing for a transition during which the incoming manager works with the departing manager. That was the case with two high-profile changes in 2010: Henry Ellenbogen replaced veteran Jack Laporte on the small-cap T. Rowe Price New Horizons (PRNHX) fund and Tim Parker took over for Charlie Ober at the natural-resources T. Rowe Price New Era (PRNEX) fund.
The unexpected does happen, though. T. Rowe Price was caught off guard when fixed-income director Mary Miller left in December 2009 for a position at the Treasury Department. Her replacement, global head of trading Mike Gitlin, was somewhat of a divergence from the norm, given that he had no experience running money and had joined T. Rowe Price just two years earlier. The company lauded Gitlin's people-management skills, and said his elevation would enhance stability by keeping managers with the company's other fixed-income funds in place.
The stability of its investment personnel and its deep analyst bench has allowed T. Rowe Price to maintain a successful investment culture through the years.
Since compensation of analysts whose work influences several funds can rival that of portfolio managers, there's no widespread pressure to get on the manager fast track. That's produced a diverse team of experienced analysts and associate portfolio managers who might eventually be groomed for lead-manager positions.
And as T. Rowe Price has expanded globally, some analysts (particularly on the fixed-income side) have taken temporary assignments overseas.
Picking stocks well
Stock picking based on the company's in-house fundamental analysis drives the funds' strategies and performance, and has proved remarkably good across a variety of equity and fixed-income fund categories.
Roughly 90% of T. Rowe Price's funds beat their respective peer groups during the five years through Dec. 31, and 75% of its funds bested their category norms over a recent 15-year period.
T. Rowe Price's emphasis on diversification and risk management helped its funds sidestep huge losses during the financial meltdown; only 10% of its funds appeared in the bottom quartile of their respective categories in 2008.
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