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A Well-Built Balanced Fund for Retirees

T. Rowe Price Retirement Balanced features an inspiring mix of funds.


The following is our latest Fund Analyst Report for T. Rowe Price Retirement Balanced (TRRIX). Morningstar Premium Members have access to full analyst reports such as this for more than 1,000 of the largest and best mutual funds. Not a Premium Member? Gain full access to our analyst reports and advanced tools immediately when you try Morningstar Premium free for 14 days.

T. Rowe Price Retirement Balanced follows an established approach poised to endure an upcoming manager change. Plus, the strategy consists of an inspiring mix of T. Rowe funds. The fund’s Morningstar Analyst Rating ranges from Bronze to Silver depending on the share class. This strategy incepted in 2002 when T. Rowe launched its first series of target-date funds. The strategy initially served as the series’ landing point that investors would reach 10 years past retirement, but the managers decided in 2004 to keep trimming equities until 30 years after retirement and land at a lower equity stake (20%). Following that change, target-date investors would no longer merge into this strategy, effectively removing it from the series. This strategy follows the same overarching approach as the target-date series and serves as a relatively conservative balanced fund for retirees. It targets a static 40%/60% stock/bond mix, and the managers use a good variety of the firm’s strategies to gain targeted asset-class exposure. Similar to the target-date funds, the managers added four funds to the mix of underlying bond funds in late 2017. However, its hefty stake in Treasury Inflation-Protected Securities--approximately 30% of the portfolio--distinguishes it from the target-date funds. The managers generally allow the firm's leaders to address issues with the underlying funds, but the strategy has a solid underlying lineup. Of the 20 underlying funds (including a money market fund), 11 are Morningstar Medalists, accounting for approximately 40% of assets. That said, T. Rowe Price New Income--the second-largest holding--fell to a Neutral rating in 2018. Recent and upcoming changes to the manager roster shouldn’t disrupt the strategy. In September 2019, T. Rowe announced that longtime lead manager Jerome Clark will come off the strategy at the beginning of 2021. In preparation, the firm promoted Kim DeDominicis to the roster in October 2019 and announced Andrew Jacobs van Merlen will join the roster in 2020. They will support Wyatt Lee, who will take the lead. Lee’s continued presence and the firm’s large asset-allocation team alleviate concerns with Clark’s transition.

Process | Above Average
This strategy’s well-built portfolio and strong building blocks support its Above Average Process rating. The strategy follows the same established approach as the firm’s target-date funds that shift asset allocation over time, except it maintains a static 40%/60% stock/bond target split. This strategy’s hefty TIPS stake also distinguishes it from the target-date funds. It held nearly 30% in a short-term TIPS strategy as of September 2019 compared with roughly 17% for T. Rowe Price Retirement 2010, which had similar equity exposure. The managers sensibly look to the TIPS strategy to temper volatility and help protect purchasing power for investors in retirement. The managers follow a prudent approach when deviating from the target asset mix. They have modest leeway to adjust the funds' stock/bond split (up to 5 percentage points) and make sub-asset-class tilts, such as growth versus value stocks. A committee of veteran T. Rowe managers relies on qualitative and quantitative insights to determine which asset classes to emphasize for the next six to 18 months. The strategy has a generally solid lineup of 20 underlying T. Rowe funds, but the method for selecting and overseeing those funds doesn't stand out. The managers have rarely removed a fund since its 2002 inception. Instead, they rely on the firm's various steering committees to address issues with the funds.

The managers have added underlying funds to the strategy’s lineup over the years. Most recently, they added four relatively new fixed-income funds to the underlying mix in late 2017 after revisiting the bond exposure. The managers reduced exposure to an intermediate-term bond fund to make way for a nontraditional bond fund and swapped an unhedged international-bond fund for one that hedges currency exposure. They also added a bank-loan fund and a long-term Treasury fund. These four additions collectively represented 11% of the portfolio as of September 2019, with the short-term TIPS strategy still anchoring the bond portfolio. The managers expect these changes to temper volatility without compromising returns over the long haul. While the four new additions don't stand out as T. Rowe's top stand-alone offerings, the strategy still boasts a solid lineup of underlying funds, particularly in equities. Of the strategy's 20 underlying funds (including a money market fund), 11 are medalists, which reflects analysts' confidence in those funds' prospects. Those funds accounted for approximately 42% of the strategy’s assets, an impressive amount given the series' heavy reliance on active strategies. However, a couple of the series' prominent holdings--T. Rowe Price New Income and T. Rowe Price International Value Equity--receive Neutral ratings owing to manager turnover.

People | Above Average 
This strategy is poised to endure a well-planned manager change. In September 2019, T. Rowe Price announced that longtime lead manager Jerome Clark, who has managed this strategy and the firm's target-date series since their 2002 inception, will relinquish his management responsibilities at the beginning of 2021. Wyatt Lee, who joined the manager roster in August 2015, will take the lead. Lee will continue to receive support from Kim DeDominicis, who joined the roster at the beginning of October 2019 after serving as associate portfolio manager. The firm also announced that Andrew Jacobs van Merlen, who has most recently been supporting the firm’s target-risk strategies, will join the manager roster at the beginning of 2020. Importantly, the managers receive support from a deep and growing asset-allocation team. The experience and depth of the managers and their supporting team contributes to an Above Average People rating. A strong lineup of underlying managers also adds appeal to the strategy. Eleven of the 13 underlying funds covered by Morningstar analysts receive a Positive People rating. The strategy has exposure to some of T. Rowe’s most highly regarded managers, including Brian Berghuis of Gold-rated T. Rowe Price Mid-Cap Growth and David Wallack of Gold-rated T. Rowe Price Mid-Cap Value.

T. Rowe Price remains best-in-class, earning a Positive Parent rating. The firm's success is rooted in its fundamental approach to active management and deep analyst bench. Investors benefit from managers' generally long tenures at the firm, well-planned manager transitions, reasonable costs, and attention to capacity. Many top executives, including CEO Bill Stromberg, rose from the analyst ranks, which helps keep a focus on investors at the forefront, even as the firm expands its distribution footprint outside the United States and bolsters its technology resources. The investment side has received resources, too. The multi-asset team has grown in size, reflecting its importance to the firm's future beyond the esteemed target-date lineup. Despite headwinds facing active managers, T. Rowe remains a powerhouse within U.S. and international equities. Fixed income is an area to watch. Several long-tenured managers have recently retired or will do so soon. Sound succession planning has smoothed the transitions, but the firm needs to ensure the bench remains deep. While high-yield and municipal bonds remain bright spots, the fixed-income team has not yet shown sustainable success in inching beyond its conservative bottom-up approach at some core strategies. Plus, the firm's foray into alternatives is unproven. Overall, though, T. Rowe Price retains the sensible and investor-focused culture that has long driven its success.

This strategy has a strong long-term record. Over the past 15 years through October 2019, the 5.5% annualized return of the strategy’s oldest share class beat 65% of peers in the allocation--30% to 50% equity Morningstar Category. While its return rarely races to the front of the pack, steady modest outperformance versus competitors has led to peer-beating results over the long run. The strategy’s rolling three-return has beaten the typical category peer in 95% of periods since its 2002 inception. The strategy has been relatively resilient during tumultuous periods, as it has generally fared well versus peers in down markets. For instance, it landed in the top third of its category in 2008 and 2015 when markets declined. More recently, it beat more than 80% of category peers in 2018 despite posting a loss of 3.3%. Impressively, the strategy has avoided the bottom third of its peer group in every calendar year since its February 2002 inception. A solid lineup of underlying funds--mostly actively managed--has provided a boost to returns. Nine of the strategy’s 20 underlying funds had a Morningstar Rating of 4 or 5 stars as of October 2019.

It’s critical to evaluate expenses, as they come directly out of returns. The share class on this report levies a fee that ranks in its Morningstar Category’s cheapest quintile. Based on our assessment of the fund’s People, Process, and Parent Pillars in the context of these fees, we think this share class will be able to deliver positive alpha relative to the category benchmark index, explaining its Morningstar Analyst Rating of Silver.

Jeff Holt does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.