T. Rowe Price is one of the largest and most respected “no load” mutual fund firms in the country. It was recently rated the top mutual fund family by Morningstar – with nearly 100 funds to choose from.
Among its diversified domestic stock funds (those still open to new investors), five stand out. All have beaten the S&P 500 Stock Index and their Morningstar categories over the past three- and five-year periods and have positive results over five years. The S&P lost nearly -7% in the past three years and roughly broke even over the past five years.
All of these mutual funds are rated four or five stars (out of five) by Morningstar and have had the same portfolio manager for at least five years. Mutual fund manager tenure and consistency of investment style are priorities at T. Rowe Price, and three of the funds have had the same manager for 12 or more years. Some are well-known, such as the $17.6 billion T. Rowe Price Equity Income Fund, managed by renowned value investor Brian C. Rogers for 25 years. Others are lesser known, such as the New America Growth Fund with $935 million in assets. Two funds use asset allocation strategies that give investors tremendous diversification among growth and value stocks, small caps, large caps, bonds and foreign stocks all in one package.
Here are the top 5 T. Rowe Price stock funds as of this writing:
New America Growth Fund (PRWAX)
Manager: Joseph M. Milano (since 2002)
Total assets: $935 million
Expenses: 0.89%
Minimum initial investment: $2,500
The large-cap New America Growth Fund was not particularly distinguished when manager Joe Milano took over in 2002, but he has since turned it into a four-star winner. The former business-services stock analyst looks for the fastest-growing sectors in the U.S. economy and uses bottom-up fundamental analysis to pick winners in those industries. Fittingly, his top holdings as of June 30 were Google Inc. (NASDAQ: GOOG) and Apple Inc. (NASDAQ: AAPL). Mid cap logistics company Expeditors International of Washington Inc. (NASDAQ: EXPD), which Milano knows well from his days as an analyst and which hit a 52-week high in August, is also in the top five along with software company Adobe Systems Inc. (ADBE) and wireless tower operator American Tower Corp. (NYSE: AMT). Milano is currently overweight in the software and business services sectors.
Milano invests at least 65% of the fund in the U.S. and has the flexibility to buy large-caps or small-caps. The common characteristics he looks for include higher than average earnings growth at a reasonable price (compared with the S&P 500) strong balance sheets, competitive positions and management teams.
The fund is up +2.77% over the past five years and has lost just -1.23% in the past three years. It is well ahead of its Morningstar Large Growth category as well as the S&P 500 over both periods.
Personal Strategy Growth Fund (TRSGX)
Manager: Edmund M. Notzon III (since 1998)
Total assets: $999.6 million
Expenses: 0.73%
Minimum initial investment: $2,500
Perhaps it is the mathematics degree from Massachusetts Institute of Technology or the doctorate from Stanford University, but Ned Notzon has proven adept over a dozen years at asset allocation. Personal Strategy Growth has the flexibility to invest in a variety of sectors including small cap stocks, large caps, high yield bonds, foreign and emerging markets stocks and cash. Generally, about 20% of the portfolio will be in bonds. Notzon makes gradual changes to the mix based on his outlook for the various asset classes given economic and financial conditions and valuations. He trims or adds to sectors that have run or have lagged. As of June 30, U.S. stocks represented about two thirds of the fund with the remainder divided about evenly between U.S. bonds and foreign stocks.
Whatever magic he works, it has worked – and earned him five stars from Morningstar. Personal Strategy Growth has handily outperformed the S&P 500 and its Morningstar Large Growth category over the past three and five years (no doubt helped by its modest allocation to bonds).
Notzon’s top holdings as of July 31 included 3M Co. (NYSE: MMM), Amazon.com Inc. (NASDAQ: AMZN), American Express Co. (NYSE: AXP), Apple Inc. (NASDAQ: AAPL) and Danaher Corp. (NYSE: DHR). The T. Rowe Price Institutional Emerging Markets Equity Fund was among his top 10 holdings. The fund gained +1.91% over the past five years and lost -3.68% in the past three years. Both results exceeded those of the Morningstar Large Blend category and the S&P 500.
Spectrum Growth Fund (PRSGX)
Manager: Edmund M. Notzon III (since 1998)
Total assets: $2.8 billion
Expenses: 0.83%
Minimum initial investment: $2,500
Another Ned Notzon asset allocation vehicle, Spectrum Growth divides its assets among many of T. Rowe Price’s best known domestic and international funds. Notzon has a wide range in which to operate – he can invest from 0% to 25% of assets in funds such as Blue Chip Growth, Equity Income, Growth Stock, Value and Summit Cash Reserves. He can invest up to 20% in Mid-Cap Growth, Mid-Cap Value and the firm’s small cap growth flagship New Horizons, and up to 10% of assets in the Emerging Markets Stock Fund. With all four of the latter funds closed to new investors, Spectrum Growth provides a back door to those highly regarded investment managers.
Again, Notzon overweights sectors he expects to outperform while reducing exposure to sectors he views as vulnerable. His disciplined, gradual approach entails periodic portfolio rebalancing – a likely factor in the fund’s success. As of June 30, nearly three quarters of the fund was invested in U.S. stocks, with 23% in foreign stocks and 2.5% in cash. The Emerging Markets stock fund was the fund’s second largest holding as of July 31, with various blue chip growth and value funds rounding out the top five. (T. Rowe Price makes certain information on the fund available at different times.)
Spectrum Growth has been a reliable investment for many years and has earned its four-star ranking. The fund of funds has outperformed the S&P 500 and its Morningstar Large Blend category over the past three and five years with a loss of -4.88% and a gain of +1.71%, respectively.
Dividend Growth Fund (PRDGX)
Manager: Thomas J. Huber (since 2005)
Total assets: $1.2 billion
Expenses: 0.72%
Minimum initial investment: $2,500
For fund manager Tom Huber, it’s all about dividends. Not unsustainably high pay outs, but those with a history of being increased and the potential to rise further. That could prove a good recipe for investors today with so much uncertainty surrounding the market and the economy. Huber believes a track record of dividend increases provides a great barometer of a company’s financial health and growth prospects. Over time, dividend income also can be a big part of total return and helps reduce volatility and offset losses in down markets. Huber seeks companies with sustainable, above average earnings and dividend growth and prefers to buy them when they are out of favor and attractively valued.
As of June 30, the fund was overweight industrial and consumer services stocks and underweight consumer goods stocks (those of companies that make consumer discretionary items). Top holdings included industrial gases producer Praxair Inc. (NYSE: PX), Wells Fargo Co. (NYSE: WFC), ExxonMobil Corp. (NYSE: XOM) and J.P. Morgan Chase & Co. (NYSE: JPM). Praxair is trading near its 52 week high.
The Dividend Growth Fund has indeed delivered market beating returns with less volatility than the S&P 500 over the past three and five years, falling -5.19% and gaining +1.06% respectively. Both results also exceeded those of the Morningstar Large Blend category.
Equity Income Fund (PRFDX)
Manager: Brian C. Rogers (since 1985)
Total assets: $17.6 billion
Expenses: 0.72%
Minimum initial investment: $2,500
Working against the grain in a mutual fund firm known for investing in growth at a reasonable price, Brian Rogers has turned the value-oriented Equity Income Fund into a giant – and one of the best known funds in the country. Partly as a result of his 25-year track record, Rogers is now chairman and chief investment officer of T. Rowe Price and increasingly shares day-to-day management of the fund with a team of analysts.
Influenced as a young investor by value guru David Dreman’s seminal book, “Contrarian Investment Strategy: The Psychology of Stock Market Success” in 1980, Rogers favors undervalued stocks – based on measures such as price to earnings, price to assets and price to cash flow – and those with above average dividend yields.
Rogers was substantially overweight in utilities and industrial materials stocks as of June 30. Top positions included longtime holding J.P. Morgan Chase & Co. (NYSE: JPM), Chevron Corp. (NYSE: CVX), General Electric Co. (NYSE: GE) and American Express Co. (NYSE: AXP). Though he has been hurt this year by BP’s plunge, the contrarian Rogers was still holding on as of early August (according to an interview with Forbes). He views BP as a strong company that will benefit from our continued reliance on oil and gas for the foreseeable future.
The Equity Income Fund has performed slightly better than the S&P 500 over the past three and five years, losing 6.53% and gaining 0.23% respectively, and has outperformed its Morningstar Large Value category in both periods.
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