Profiting From the Long View
Once derided by Wall Street as too stodgy, T. Rowe Price now serves up sexy returns
At the start of this decade, Wall Street began writing T. Rowe Price's obituary. A first draft appeared in the Wall Street Journal on March 6, 2000. "The gears of the investing machine that helped make T. Rowe one of the nation's 10 biggest mutual fund firms have gotten stuck," the story concluded. Investors were then in the final ardor of their torrid love affair with highflying technology stocks—a passion that portfolio managers at T. Rowe Price never quite shared. With only half as much tech exposure as their most aggressive rivals, many funds run by this stodgy Baltimore investment management firm—it turns 70 this year—lagged behind the competition at shops like Janus or Invesco.
Just days after the article appeared, the Internet bubble burst, giving way to the worst bear market in a generation. And while investment managers who had fattened up on tech slimmed down fast, T. Rowe Price is now bigger than ever, thanks to its stubborn conviction to invest for growth, but only at a reasonable price. Since the bear market ended in 2002, total assets under management at T. Rowe have more than doubled, from $141 billion to $350 billion this spring. Investors aren't just flocking to the company's funds; they seem to love the stock, too. Shares of T. Rowe Price have risen 27 percent a year on average for the past five years vs. 8.5 percent for the S&P 500, representing the broader stock market.
To be sure, T. Rowe isn't the largest player in money management—not by a long shot. Based on total global assets under management, T. Rowe Price ranked 28th among the world's largest money managers at the end of last year. It's not even the splashiest investment firm in Baltimore. That honor goes to rival Legg Mason, whose 35-story office tower—emblazoned with its logo—soars above the nearby structure housing T. Rowe, which doesn't tout the company's presence. Yet for the past three years, its funds ranked in the top 10 when it comes to attracting new assets, according to Financial Research Corp. So far this year, it's in the top five.
And although T. Rowe likes the low-key approach, its bosses aren't pushovers. About a year and a half after the tech meltdown, T. Rowe Price executives contacted the Wall Street Journal. "We said, 'Maybe you guys should do a follow-up to that story,'" says Edward Bernard, T. Rowe Price's vice chairman. "Their response was, 'Boy, you guys have a long memory.'"
Untainted. It's that long institutional memory—and a surprisingly long-term approach to money management—that serves as a cornerstone of T. Rowe Price's recent success. It was also one of the few mutual fund companies that totally avoided any hint of controversy during the market-timing and trading scandals in 2002 and 2003. In fact, when Dalbar, a leading financial services consulting firm, attempted to study the aftereffects of those scandals on the fund industry, "we made a huge mistake," says Dalbar President Lou Harvey. "We left T. Rowe Price completely out of the study." Why? "Because T. Rowe Price's name didn't appear anywhere in the headlines during those scandals," he says.
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