T. Rowe Price HISTORY (continued)
Since its founding, T. Rowe Price has taken a client-centered approach to new investment products. Consider the key challenge most investors face: How to build sufficient assets to ensure adequate income during a retirement that could last 30 years or more. The industry's first target-date funds were introduced in the mid-1990s to address this issue. Jerome Clark, portfolio manager of the T. Rowe Price Retirement Funds, and his research team took time to study the new concept. "This was a new area, and we wanted to be sure we fully understood all the implications," says Clark. "We asked ourselves if this product would truly benefit investors."
His research team found that the most significant risk faced by retirement investors was the chance that they would outlive their savings. At the time, many investors were struggling to make asset allocation decisions that accurately reflected their time horizons and risk tolerances. Young investors often held a mix of investments that was far too conservative for their age, while older investors frequently held positions that were too aggressive—and both groups typically neglected to adjust their allocations over time. Extensive research and modeling at the firm resulted in the introduction, in 2002, of the T. Rowe Price Retirement Funds.1 Each professionally managed fund invests in a diversified range of T. Rowe Price stock and bond mutual funds, with a base asset allocation set to retirement time horizons. Investors choose the fund date that is closest to the year they will turn (or turned) age 65. The fund doesn't hit a static allocation at this age; instead, the target date determines how the fund's allocation will shift leading up to and during retirement. A feature that sets the funds apart is the higher equity allocation, which provides the growth exposure needed to fund a lengthy retirement. Says Clark, "We stepped back and developed a product that we believe serves investors very well."
A focus on clients has led the firm to innovate in other areas as well. In recent years, with the fiscal crisis slowing growth in Europe and the U.S., finding opportunity in fixed income has become increasingly important. T. Rowe Price's Fixed Income Division has introduced several new mutual funds that allow investors to broaden their exposure to new and growing segments of global fixed income markets. Last year, for example, the firm launched the Emerging Markets Local Currency Bond Fund, which enables U.S. investors to gain exposure to emerging market sovereign debt denominated in local currencies.2 Many emerging markets, Gitlin observes, have strong underlying fundamentals, including superior gross domestic product (GDP) growth, low debt-to-GDP ratios, and low deficit-to-GDP ratios. He points out that the fund gives investors access to the higher yields that can be found in emerging markets, in addition to diversification away from the U.S. dollar. But there was no rush to create the fund. "The firm avoids developing new products for novelty's sake," he says. "We may, at times, be less aggressive than some of our competitors in launching products—and we won't launch them if we don't believe they offer a durable investment case. Our core value is doing what is right for clients."
PUTTING CLIENTS FIRST
Thomas Rowe Price, Jr., believed that a buy-and-hold approach was the surest path to investment success. While T. Rowe Price employs a variety of investment strategies within its mutual funds today, a long-term view and a sharp focus on clients' needs remain central to the firm's approach—even in the most challenging conditions. "We all work for the clients every day," says Kennedy. "You can't do that without outstanding people. Thomas Rowe Price, Jr., believed that, and we still do."
This approach has stood the test of time and will continue to do so in the years ahead. That heritage, and a commitment to put the clients' interests above all else, gives T. Rowe Price the ability to sustain and strengthen its long-term perspective in the years to come.1 The principal value of the Retirement Funds is not guaranteed at any time, including at or after the target date, which is the approximate date when investors turn age 65. The funds invest in a broad range of underlying mutual funds that include stocks, bonds, and short-term investments and are subject to the risks of different areas of the market. The funds emphasize potential capital appreciation during the early phases of retirement asset accumulation, balance the need for appreciation with the need for income as retirement approaches, and focus more on income and principal stability during retirement. The funds maintain a substantial allocation to equities both prior to and after the target date, which can result in greater volatility.
2 Since the fund invests in assets of foreign securities, it is subject to the risk that some holdings may lose value because of declining foreign currencies, adverse political or economic developments overseas, illiquid markets, government interference, or regulatory practices that differ from those in the U.S. These risks are heightened for investments in emerging markets. The fund is "nondiversified," meaning it may invest a greater portion of assets in fewer issuers than is permissible for a "diversified" fund.