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How Do T. Rowe Price Funds Stack Up?

Most of the firm's rated funds have garnered positive Morningstar Analyst Ratings.

Katie Rushkewicz Reichart, CFA, 09/20/2012

Recently my colleague Christopher Davis took a look at how Fidelity's funds have fared under the new Morningstar Analyst Rating system. Below we'll review T. Rowe Price's pockets of strength and (relative) weakness.

The good news for T. Rowe fund investors is that most funds have received favorable ratings. Morningstar analysts have rated 53 of its 111 funds as of mid-September, representing nearly 88% of the firm's mutual fund assets. Of those 53 funds, 22 (41.5%) are rated Gold, 12 (22.6%) Silver, 10 (18.9%) Bronze, and nine (17%) Neutral. No fund has received a Negative rating.

The firm's domestic-equity funds are a strong spot, with all but a few garnering a rating of Bronze or above. The funds overseen by the asset-allocation team, including the target-date series, all receive scores of Gold or Silver thanks to solid underlying investments and tactical decisions that have paid off over the long term. The firm's municipal-bond funds are rated Gold and Silver, with the experienced team's risk-conscious approach giving them a leg up. The taxable funds are mostly solid, if not outstanding, options, with ratings ranging from Neutral to Gold.

The most evident area of weakness is international equity. No funds in this asset class received a Gold rating, and only one is rated Silver. While three are rated Bronze, the bulk (five funds in total) are in the Neutral bucket. That's not entirely surprising, as the firm's international-equity operation is the least established part of the organization. The firm has built out its resources over the past decade, but some funds still have relatively inexperienced managers or undistinguished processes that have not yet merited a recommendation.

Parent and Price are two areas the firm's funds score well across the board. The positive Parent rating is driven by the firm's strong investment culture, retention of key personnel, and well-planned manager transitions. All but one rated fund received a positive Price score. (T. Rowe Price Equity Index 500's PREIX 30-basis-points expense ratio isn't competitive relative to other S&P 500 Index funds, so it scores Neutral on price.) That means Process, People, and Performance are the areas where a fund can distinguish itself as stellar or simply mediocre.

Top Tier
The highest-rated funds are largely run by longtime managers who have shown they can outperform over a full market cycle. All but one Gold-rated fund have managers with tenures of 10-plus years. (David Giroux's six-year tenure at T. Rowe Price Capital Appreciation PRWCX is the exception.)

The firm's well-respected analyst team provides an instant advantage, which is likely a reason no fund has been rated Negative. That doesn't mean all funds are equal, though. The best offerings at T. Rowe are run by managers who effectively utilize the analysts' research but go beyond compiling a list of top recommendations. These managers put their own stamp on the fund, whether it's diving into stock-specific research, seeking out picks that aren't widely held by peers, or developing unique theses on stocks.

Most managers are former T. Rowe analysts who can draw on their past experience. Joe Milano's time as a small/mid-cap analyst helps him put a spin on T. Rowe Price New America Growth PRWAX, a large-growth fund that invests across the market-cap spectrum. That's led to picks that aren't prominent fixtures in other large-cap funds, such as Valmont Industries VMI, and others that Milano closely follows on his own, including Fastenal FAST.

Katie Rushkewicz Reichart is a senior mutual fund analyst with Morningstar.

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