For these managers, the long run truly means the long run.
A highlight of the June Morningstar Investment Conference in Chicago was the panel featuring the "quarter-century club." Before an attentive audience of 1,800 financial advisors and individual investors, three highly regarded mutual fund managers--Brian Rogers of T. Rowe Price Equity Income PRFDX, Will Danoff of Fidelity Contrafund FCNTX, and Susan Byrne of GAMCO Westwood Equity WESWX--shared lessons, advice, and stories gained during 25 years of running the same fund for the same firm. (Danoff's tenure at Contrafund began in 1990, but he had joined Fidelity four years earlier.)
After listening to these veterans speak, I decided to look at the roster of other managers who have been at the controls of the same fund for an inordinate amount of time. The list is longer than I would have guessed, even taking into account that some may have been serving more as figureheads or strategists rather than hands-on portfolio managers for part of that time.
But another fact also stood out: Rogers isn't the only manager at T. Rowe Price with an exceptionally long stint at the same fund. Four other managers at that firm either recently passed the 20-year mark or are close to that milestone. And though they certainly have had help, they have been the sole listed manager of their funds for all or most of that time; they aren't just one element in a large manager team.
Preston Athey, T. Rowe
Price Small-Cap Value PRSVX
When Preston Athey took the helm of this offering in the summer of 1991, it was a three-year-old fund with less than $50 million in assets. It now has $7 billion. Over Athey's long tenure, its return has comfortably beaten the Russell 2000 Index, the Russell 2000 Value Index, and the averages for all three small-cap categories. That helps explain its meteoric asset growth. A hefty asset base poses a challenge for a small-cap fund, but Athey has handled the growth well; performance in recent years has remained impressive.
It almost seems that upon taking the helm nearly 21 years ago, Athey was already planning on settling in for a lengthy tenure. In 1992, his first calendar year as manager, the fund's turnover rate was just 12%, minuscule for any type of equity fund. It has been in that range ever since. That's likely one reason its large asset base hasn't slowed the fund down. A big asset base can make it difficult to trade small stocks efficiently, but it's less of a problem if the manager limits his trading.
Gregory McCrickard, T. Rowe
Price Small-Cap Stock OTCFX
It would be impressive if T. Rowe Price had just one small-cap manager with a 20-year tenure, but barring any unforeseen events, Greg McCrickard of T. Rowe Price Small-Cap Stock will soon become the second. (A third, Jack LaPorte, ran T. Rowe Price New Horizons PRNHX for 22 years before retiring in 2010.) McCrickard took the reins in early September 1992, when T. Rowe assumed the management duties from another advisor.
As with Athey's fund, this one has posted impressive performance over McCrickard's entire tenure as well as in recent years, even as its asset base has grown. (It now has $6.8 billion in its coffers.) Other similarities include low turnover, which has been between 15% and 25% almost every year, and a tendency to lose less in market downturns than most peers do. McCrickard and Athey rely on many of the same analysts at T. Rowe, and some of the same names show up in their portfolios, but the funds are far from clones. This fund leans more toward the growth side of the spectrum than Athey's Small-Cap Value portfolio, for instance.
Brian Berghuis, T. Rowe
Price Mid-Cap Growth RPMGX
There may be cake and balloons adorning Brian Berghuis' desk as you read this as he he hits his 20th anniversary at the helm of T. Rowe Price Mid-Cap Growth (it's the fund's 20th birthday, as well). With turnover rates in the 30%-40% range, Berguis has not been quite as patient an investor as Athey and McCrickard, but he's far from a rapid trader. In fact, more than half of the top 25 holdings in the most-recent portfolio were first bought in 2007 or earlier, and the fund's overall turnover rate is consistently less than half the mid-growth norm. That's a good thing, as this fund has grown to $17.5 billion in assets and is less nimble than it once was. It is now closed to new investors.
As with the two small-cap funds, strong performance accounts for T. Rowe Price Mid-Cap Growth's surge in assets. The fund's 10- and 15-year returns both beat more than 90% of its mid-growth peers. Over its full history, it has topped both the Russell Mid Cap Growth Index and the mid-cap growth category average by more than 4 percentage points on an annualized basis. Despite the growth in assets, Berghuis has not altered his strategy. The portfolio consistently lands around the same location in the mid-growth style box, and Berguis owns only a few more names than he did a decade ago.
Larry Puglia, T. Rowe
Price Blue Chip Growth TRBCX
If all goes well, a year from now Larry Puglia will join the 20-year club. He took over Blue Chip Growth in mid-1993. Several of this large-growth fund's traits will sound familiar by now. For example, this fund has a lower annual turnover rate than most peers (though higher than the above-mentioned funds) and usually suffers less than than the category norm during market declines, although it did post almost exactly the same loss as the large-growth category average in the bear market from late 2007 to early 2009.
The fund has posted strong performance versus indexes and the large-growth category average over Puglia's long tenure. Its annualized return over that stretch beats the category by more than 2 percentage points, in fact. And it's recovered well from the most recent bear market, sitting in the top quartile for the three-year period through June 30.
Not Just the Answer to a Trivia Question
The fact that T. Rowe Price has five managers either past or soon approaching the 20-year mark at the same fund, serving as sole manager most or all of that time, is more than an interesting footnote. After all, in an industry in which job-hopping is common, the managers have spent most of their working lives at the same firm. When Morningstar analysts evaluate the investment culture at a fund firm, a key issue is whether the investment personnel see the firm as a place where they'd like to spend their entire careers. T. Rowe Price seems to meet this standard. Besides the managers mentioned above, several others have run their funds for at least 15 years. And more broadly, overall manager retention rates at T. Rowe Price are higher than the industry average.
T. Rowe isn't the only place one can find managers with long tenures, but at big firms with extensive fund lineups, it's highly unusual to see so many managers running the same fund for so long.
What explains this? There's no magic formula, of course. But several factors stand out. First, a simple one: The firm usually has decided to allow successful managers to stay on their funds for the long haul, rather than switching them to other portfolios after a few years of strong performance, as some shops do. (T. Rowe doesn't always follow this policy. Three times in the past decade, the managers of the highly successful T. Rowe Price Media and Telecommunications PRMTX have been moved to other funds in the firm's stable, even though Media and Telecom is itself a rather large fund.)
Second, T. Rowe has set up a solid investment culture that makes it more likely that managers will succeed and will want to stick around. The firm attracts talented individuals and puts them in a position to succeed by promoting sound and patient investment strategies, keeping fund costs moderate, and providing extensive support. Not all parts of the shop are stellar; some international-stock funds have had their struggles. But most areas are impressive.
The support provided to managers is likely bolstered by T. Rowe's policy of establishing attractive career paths for analysts. Researchers can be respected and remunerated like portfolio managers even if they remain in an analyst role, so they need not think they must leave and become managers themselves in order to reach their goals. This helps provide a stable and talented corps of analysts that managers can rely upon. Moreover, it can create an atmosphere in which everyone expects that others will stick around and thus thinks it natural to stick around themselves. That's critical, because while these managers are listed as solo leaders, they are hardly on their own. Besides the analyst staffs (and in some cases associate portfolio managers), they work with "investment committees" of experienced colleagues who convene on occasion to review the portfolio.
All told, a shareholder of a T. Rowe portfolio has more reason than most fund investors to think that, if they they stick with their fund for the long haul, the same manager will be there with them.