Sun, 1 Jan 2017
Morningstar's Katie Reichart looks back at the firm's move to a multi-CIO approach, the Total Return Fund launch, and new Analyst Ratings on T. Rowe funds.
Karen Wallace: For Morningstar, I'm Karen Wallace, I'm here with Katie Reichart, she is an associate director in our manager research group, to take a year-end look at T. Rowe Price.
Katie, thanks so much for being here.
Katie Reichart: Thanks for having me.
Wallace: Let's start with some firm news. There were some big changes at the top at T. Rowe this year. Can you discuss them a little bit?
Reichart: Sure. Well, one recent change we've seen, Brian Rogers announced he is retiring as CIO. He had already handed off Equity Income, but now they are taking on a multi-CIO approach, which is new for them. So, you have Rob Sharps overseeing all these CIOs and then you have it broken down by U.S. Equity Growth, Multi-Discipline, Equity Value, International Equity, and Fixed Income. And the people in those roles are really experienced. They are running some very high-profile funds with good ratings, good records. So, I think, they have the right people in place. It's interesting that you've seen kind of more specialization. Usually, at other firms, there might just be equity CIO and a fixed-income CIO.
Wallace: And there were also some notable fund launches at T. Rowe Price this year, a Total Return Fund.
Reichart: Yeah. So, that was one recent launch, T. Rowe Price Total Return, and I think here they are trying to fill a niche that they really were missing, especially after some of the money flowed out of PIMCO Total Return a few years ago. This fund, it will take on a little more risk than New Income, and I think we think pretty highly of the high-yield and emerging-market debts team that will be contributing to this fund. So, it's still very early days for it, but it's one we'll be watching.
Wallace: And a Global Consumer Fund as well?
Reichart: Yeah. And I think that T. Rowe has become much more global in its equity research over the years. So, I think, with some of these new launches they are looking globally, trying to leverage their analyst team and also create some manager roles for up-and-comers.
Wallace: Let's turn to our Morningstar Analyst Ratings, if I could. We have some funds that are newly under coverage. Growth & Income is one.
Reichart: Yeah. And that fund was rated Bronze. Jeff Rottinghaus just took over in 2015, but he has a good record dating back to 2009 using the same approach at a different fund. So, we have confidence in that fund.
Wallace: And there were also some index funds that we added to our coverage.
Reichart: Yep. We initiated coverage on Extended Equity Market and Total Equity Market Index. Both of those are rated Bronze. I'd point out, T. Rowe is not very competitive on price with index funds. In our ratings, we are looking relative to categories. So, these funds are still low-priced compared to other active funds in the category. So, that's the reason for the Bronze ratings.
Wallace: We also had an upgrade, a ratings upgrade, and that was on International Growth & Income.
Reichart: Yep. And that one was upgraded from Neutral to Bronze. Jonathan Matthews has run it for about six years now and has pretty solid record. So, we really like how he is performing in different market environments.
Wallace: So, let's to performance, sort of asset class-by class, if we could look at what happened in sort of through mid-December 2016.
Reichart: Well, looking at U.S. equity, a little more than half of the funds beat their category averages, so not the strongest year for them. International equity did a little better, about 70% of the funds outperformed their averages. Fixed income was just about two thirds in allocation, or right around half.
Wallace: So, let's look at some of the leaders and what helped them outperform.
Reichart: Well, Mid-Cap Value has done really well this year. David Wallack, he moved into some energy names in the first quarter and that wasn't really a macro call. It was more company-specific. I think some of those bets really worked out a lot quicker than he maybe even anticipated. But that's boosted performance as well as just generally good stockpicking. The fund even had a 6% to 8% cash through the year and that wasn't even a headwind for the fund. It's been a top performer.
Wallace: Among the laggards, do we see new trends there?
Reichart: Yeah. Some of the large-growth funds, Blue Chip Growth and Growth Stock, have landed in the bottom half of their categories this year, and I think they are coming off a really strong 2015 performance. They own a lot of healthcare, so obviously, that's been kind of a headwind this year.
Wallace: Katie, thanks so much for being here to discuss this.
Reichart: Thank you.
Wallace: For Morningstar, I'm Karen Wallace. Thanks for watching.