Does T. Rowe Price Add Value For Investors?
May 3, 2016
by Larry Swedroe
My series evaluating the performance of the market’s most prominent actively managed mutual fund families continues with an in-depth analysis of offerings from T. Rowe Price. The firm has been entrusted with the assets of countless investors over its nearly 80-year history. Its eponymous founder popularized the concept of active management through growth-stock investing. I will examine whether the firm’s funds have historically added value for investors relative to a passive benchmark.
Morningstar reports that, as of March 31, T. Rowe Price had more than $580 billion in assets under management, down slightly from $613 billion at the end of 2015. That makes the firm one of the 10 largest mutual fund families.
In Barron’s 2015 annual report on mutual fund families, T. Rowe Price finished in fourth place, up from its 16th place ranking in 2014. The firm ranked second last year for five-year returns and fourth based on 10-year returns.
The firm’s website states: “As a global investment manager, we actively listen, anticipate, and develop strategies that respond to the needs of our clients. Each strategy is supported by our proprietary global research platform and experienced investment teams. Our analysts and portfolio managers work together across regions, sectors, and asset classes to identify investment opportunities others might miss.” They also assert that their “diversity of product and distribution is a source of strength and stability” and reduces the firm’s “reliance on any one strategy or segment and the potential impact of negative market cycles.”
They add: “We believe our consistent, client-centered investment philosophy has helped us navigate all kinds of markets. The core of this philosophy – utilizing proprietary research to guide active investment selection and diversification to reduce risk – anchors our investment process. Our investment professionals share insights, ideas, and opinions across disciplines and time zones to find the best solutions for our clients in more than 40 countries. For nearly 80 years, this collaborative, disciplined approach has stood the test of time.” And finally, they observe that their equity analysts have on average 20 years of investment experience.
There is a key question: does the strategy and investment approach detailed above result in superior outcomes versus a passive strategy? To answer that, I’ll compare the performance of T. Rowe Price’s actively managed equity funds to similar offerings from two prominent providers of passively managed funds, Dimensional Fund Advisors (DFA) and Vanguard. (Full disclosure: My firm, Buckingham, recommends DFA funds in constructing client portfolios.)
I should note that DFA funds can be purchased through some 529 and 401(k) plans but, generally, are available only through an advisor. An investor would incur fees from that advisor; those fees can vary greatly (in some cases they are very low) and cover the full range of financial planning services the advisor provides. Also, John Hancock recently introduced a series of ETFs that are managed through DFA (with expense ratios that differ from the DFA funds cited in this article). Those ETFs can be purchased directly by investors. All Vanguard funds can be purchased directly by investors.
As is my practice, to keep the list to a manageable number of funds and to ensure that I examine long-term results through full economic cycles, I will analyze the 15-year period ending February 2015. I will use the lowest-cost shares available for the full period when more than one class of fund is available. And in cases where the fund family has more than one fund in an asset class, I’ll use the average return of those funds in my comparison.
The table below shows the performance of 18 actively managed funds (15 domestic and three international) offered by T. Rowe Price across six domestic equity asset classes and three international equity asset classes.