When Thomas Rowe Price, Jr., founded our firm 75 years ago, he aimed to create an organization "with a reputation for the highest character and the soundest investment philosophy." T. Rowe Price has since grown from a firm of fewer than a dozen people to more than 5,000 associates worldwide. But its business is still rooted in its founder's most deeply held value: doing what is best for the client. The asset manager tries to make that happen through a disciplined, long-term investment approach, extensive research, and collaboration performed by top-notch professionals who identify the best investments.
Remaining faithful to these tenets has enabled the firm to navigate a breathtaking array of economic and market events since the end of the Great Depression. "Our long-term perspective helps us to make prudent investment decisions," says Christopher Alderson, president of T. Rowe Price International Equity. "It enables us to identify investment opportunities for our clients" and, just as important, to avoid securities that may look appealing in the short term but whose long-term prospects are less promising."
T. Rowe Price HISTORY
A LONG-TERM INVESTMENT APPROACH
From the beginning, T. Rowe Price has taken the long view, both in its investment decisions and its approach to growth. This outlook has helped the firm and its clients weather down markets and financial crises. The approach is deliberate, says Jim Kennedy, president and chief executive officer of T. Rowe Price. "We get to know the companies we invest in extremely well, and our portfolios tend to experience limited turnover," he says. "As a result, we have the luxury of taking a long-term perspective—and we can often benefit from the actions of those in the marketplace who panic on bad news."
The firm's long-term perspective underlies its approach to risk—one that aimed to protect clients during the technology boom in the 1990s, when the company decided not to introduce an Internet fund, despite pressure from voices in the financial media. "We did look into it seriously," says Preston Athey, portfolio manager of the T. Rowe Price Small-Cap Value Fund. "But we came to the conclusion that while we could bring very good research to the sector, the timing was highly risky. We thought a lot of people would come in at the top of the cycle and lose their shirts, so we decided against launching a fund."
The end of the story is well known: Investors who bought into expensive Internet stocks during the boom saw their assets decline as dot-com stocks plummeted from their sky-high valuations. Although the performance of some T. Rowe Price funds lagged the market for the final six months of the technology rally in 1999 and 2000, overall losses were tempered when the markets turned. "We may not always keep up in speculative markets," Athey says, "but we aim to do a better job than most of protecting you in down periods."
Athey's team, for example, takes considerable leeway in diverging from the fund's benchmark, the Russell 2000 Value Index, when they believe its allocations have become excessively exposed to one sector. The index recently held a weighting in financial stocks of roughly 37%. "I'm thinking about my clients and shareholders and asking, "Would any reasonable person invest that much of their assets in one sector?" says Athey, whose fund held just 23% of its assets in the sector.
Athey's approach to diversification and his long-term view have helped the Small-Cap Value Fund generate considerably less volatility than its benchmark and its peers. Fund-tracking firm Morningstar, Inc., reports that the fund's risk was below its category average for the 3-, 5-, and 10-year periods through March 2012.
RESEARCH AND COLLABORATION
Collaboration is a bedrock principle at T. Rowe Price. The firm's 125 analysts work together around the globe to assess securities, identify risks, and spot opportunities. "Research is the lifeblood of the investment industry—and we think it's our advantage in the business," says Alderson. "We have always had a very high-quality investment research department in the U.S., and we have replicated that internationally. Our global footprint is unique—only a very small number of companies can rival the strength of our research network."
The firm recently expanded its global reach by adding analysts in Australia. "We've significantly built out our international research operations," Alderson says. "This has been a very deliberate, concerted, and strategic move. We now have more analysts outside the U.S. than inside the U.S." These resources have proved essential as the firm and its clients navigate the European debt crisis. Equity and debt analysts work together to understand the full impact of the crisis on regional and global financial systems, as well as on individual securities. Sovereign debt analysts, for example, assess the risk of default on bonds issued by southern European countries, the focus of the crisis. And financial analysts continually monitor the health of Europe's leading financial institutions, visiting them in person to determine whether they hold adequate amounts of capital and to gauge their exposure to nonperforming loans. Notes Mike Gitlin, the firm's director of fixed income, "The best way to mitigate risk in fixed income investments is through strong quantitative and credit research."
Looking beyond the big picture
T. Rowe Price's research capabilities and long-term perspective have helped its funds weather—and even capitalize on—volatile markets. "During this financial crisis, some great companies have traded more on fear than on their company-specific underlying fundamentals," says Gitlin. "Working together, our analysts can assess the magnitude of the sovereign challenges and use that macroeconomic perspective to give them a better sense of the risk/reward ratio for individual companies."
That approach has helped the team identify some compelling investment opportunities. Alderson observes that several portfolio managers invested in select European financial stocks that were trading at deep discounts. "We place a very high emphasis on collaboration and teamwork. All of our analysts interact with their global counterparts to share best practices and try to get an edge on what's happening in their industries around the world," Alderson says. "Their work helps our portfolio managers make smart decisions, even in turbulent markets."
Photographs FROM getty IMages AND COURTESY of T. Rowe Price