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  • June 25, 2013

    In a recent interview, portfolio manager Charles Shriver, discusses the new Global Allocation Fund.

    Charles Shriver: I'm the portfolio manager of the Global Allocation Fund. I'm responsible for the day-to-day management and oversight of the portfolio, as well as the ongoing evaluation of portfolio positioning, performance, and the risk profile of the fund. I work very closely with the fund's advisory committee as well as the Asset Allocation Committee, in terms of the strategic and tactical allocation of the portfolio.

    [When] the idea for the Global Allocation Fund came about, we wanted to offer investors the opportunity to benefit from global investment opportunities and do so in a portfolio that was broadly diversified across asset classes and investment sectors around the globe.

    We brought the Global Allocation Fund up now, as investors are increasingly looking beyond U.S. stocks and bonds to meet their long-term investment objectives, and [we believe] the Global Allocation Fund is uniquely positioned and distinctly designed to meet those goals.

    The portfolio takes advantage of two of T. Rowe Price's key strengths: our asset allocation expertise and our global investment management capabilities. The objective of the fund is long-term total return, primarily through capital appreciation and secondarily through income.

    What does the fund invest in?

    Shriver: The portfolio is broadly diversified across asset classes and includes a 60% allocation in global stocks, [a] 30% allocation in global bonds, and a 10% allocation to alternatives through an absolute return-oriented hedge fund.(Alternatives include additional investment vehicles offered through hedge funds, which are private, actively managed investment funds. They invest in a diverse range of markets, investment instruments, and strategies and are subject to the regulatory restrictions of their country.)

    The equity portfolio is split roughly 50% into stocks outside the U.S. and 50% inside the U.S. Within the fixed income component of the portfolio, about 30% of the allocation is outside the U.S.

    The portfolio has very robust exposure to emerging markets. It includes emerging market stocks, bonds, as well as currencies.

    Emerging markets offer an opportunity for solid long-term growth potential within the equities and the fixed income [investments]. Very often, emerging markets have a better fiscal profile than developed markets. The portfolio invests in several new investment strategies, including a 10% investment in alternatives through a hedge fund. The benefit of using hedge funds is that they have returns that are not following the same pattern as traditional stocks and bonds. As well, they offer sources of return that aren't typically captured through traditional stock and bond investments.

    Why choose T. Rowe Price for this type of fund?

    Within the Global Allocation Fund, there are three sources of value added. There's the portfolio design. It's a broadly diversified portfolio, a profile that was developed by the asset allocation research team. The second source of value added is through the insights of the T. Rowe Price Asset Allocation Committee and the decisions to over[weight] and underweight sectors within the portfolio. And one of the most significant sources of value added within the portfolio is security selection by the underlying sector specialists, working with T. Rowe Price's team of over 200 global research analysts.

    How can this fund be used?

    The ideal investor for the Global Allocation Fund is a long-term investor with a moderate risk profile, somebody who is looking for a broadly diversified portfolio of global investments and who believes in the value of active management and security selection.

    This portfolio could fit into your overall investment strategy as either a core portfolio—given its broadly diversified nature it could serve as a standalone offering—or you could integrate it as a complementary portfolio to existing holdings if you're looking to either increase the global allocation within your portfolio or if you want to [potentially] benefit from some of the underlying strategies, such as a moderate allocation to alternatives, like hedge funds, or if you want exposure to fixed income that's based upon specific attributes and not designed to replicate the broad U.S. bond market.

    What are the risks?

    [The Global Allocation Fund is similar to balanced funds as it has approximately 60 percent equity allocation, but the risk profile is higher due to] its international allocation as well as 10% allocation to alternatives through hedge funds.

    There are distinct risks associated with international investing including geopolitical risk; policy risk, including monetary, fiscal, and regulatory risk; as well as local business risk and currency risk.

    Investments in hedge funds have the potential for illiquidity risk. A hedge fund is not subject to the same regulatory requirements as mutual funds and other investment companies. Hedge funds are not required to provide periodic pricing or valuation information to investors, and often engage in leveraging, short-selling, commodities investing and other speculative investment practices that are not fully disclosed and may increase the risk of investment loss. Their underlying holdings are not as transparent to investors or typically as diversified as those of traditional mutual funds, and an investor's redemption rights are typically limited. All of these factors make the fund's investments in alternative investments and hedge funds more difficult to value and monitor when compared to more traditional investments, and may increase the fund's illiquidity risks.

    Diversification cannot assure a profit or protect against loss in a declining market.

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