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By Greg Carlson | 01-03-2013 01:00 PM

Stocks Attractive on a Relative, But Not Absolute, Basis

Investors should keep their expectations in check with few asset classes looking particularly attractive and complacency in the marketplace, says Allocation Fund Manager of the Year David Giroux of T. Rowe Price Capital Appreciation.

Greg Carlson: Hi my name is Greg Carlson; I'm a fund analyst with Morningstar.

I'm joined today by the winner of Morningstar's very first award for Allocation Fund Manager the Year, David Giroux of T. Rowe Price Capital Appreciation.

David, thanks for joining me.

David Giroux: Pleasure to be here.

Carlson: Now we should probably start by talking about the strategy of your fund, because there are number of moving parts here.

Perhaps, you can go through them. The fund typically invests the majority of its assets in stocks, but there are other sub-portfolios, if you will, that are involved?

Giroux: Sure, Greg, we are a multi-asset-class strategy. Like you said, stocks are always at least half the assets of the strategy, but in addition we'll buy fixed-rate bonds, investment-grade bonds, high-yield bonds, floating-rate securities like bank debt or Ginnie Maes. In addition, we do some covered-call writing from time to time.

The strategy really has three main objectives: We want to generate good, risk-adjusted returns year in and year out, we want to preserve capital over a three-year basis, and over a full market cycle, we need to generated equitylike returns with less risk and that of the overall market.

Carlson: Right, and the benchmark there being the S&P.

Giroux: Yes.

Carlson: Well, maybe you can review for us just briefly what did well in 2012 for the fund? It obviously had a very good year relative to its category?

Giroux: Well, Greg, I'd say a couple of things went right for us last year. A lot of our floating-rate instruments did well. We had a big bet in Sprint in our fixed-income that did well. TRW, Delphi, some of our auto suppliers did well, Disney had a good year. Thermo Fisher, which was our largest holding last year, did very, very well. So, really equities and fixed income both did quite well for us.

Carlson: Drilling down little more, I think you mentioned Cooper--that was a company that was taken out at the premium for you?

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