Christine Benz: Hi, I'm Christine Benz for Morningstar.com. What steps is T. Rowe Price taking to maintain market share in an era in which investors are gravitating toward passive products? Joining me to discuss that topic and to provide a midyear recap of T. Rowe Price is Katie Reichart. She is director of U.S. equity strategies in Morningstar's manager research group.
Katie, thank you so much for being here.
Katie Reichart: Thanks for having me.
Benz: You and the team were just out at T. Rowe Price in Baltimore sitting down with executive leadership and fund managers. I assume this question of the fact that we have seen this torrent of assets going to passive products is top-of-mind for T. Rowe Price. How are they viewing the firm's future in light of the fact that flows have gone so strongly to passive products?
Reichart: I would say one thing off the bat is that T. Rowe is doing really well considering they are primarily an active manager. Performance has been really strong across the board. We have seen them be a little bit more aggressive though on the business side. They are expanding sales efforts overseas to ramp up assets there. I think that that type of things makes a lot of sense.
Benz: I know the multi-asset products have been a big thrust for the firm. They have quite a few assets there. How is the firm thinking about that piece of its product lineup?
Reichart: Multi-asset is a big initiative for them, and they brought in Sebastien Page from PIMCO to head up that team. They have done a ton of hiring there. I think they really want to supplement their successful target-date business with other products. We've seen them even move into some areas that are kind of new to them, like liquid alternatives with the Multi-Strategy Total Return Fund. Down the road there might be something like the Capital Appreciation & Income Fund, an offshoot of David Giroux's very successful fund. I think that that's going to be a driver for them going forward.
Benz: Now, I know you and the team are constantly evaluating, re-evaluating the analyst ratings that we have on the products. Let's talk about some recent upgrades for T. Rowe Price funds. What are some of the highlights there?
Reichart: We have actually seen about five upgrades year to date through 2018. One prominent one is T. Rowe Price Equity Income. That went from Bronze to Silver. Really, since John Linehan took over in 2015, he has executed the fund well. He has past history at T. Rowe Price Value. We just felt like we were pretty comfortable with his approach there.
Benz: Then Small-Cap Stock was upgraded. QM U.S. Small-Cap Growth also upgraded, and New America Growth and Overseas Stock also upgraded.
Reichart: Small-Cap Stock went from Neutral to Bronze. I think T. Rowe has done a nice job in their small-cap arena and have added some more coverage to those types of small and mid-cap stocks. The QM fund is actually a quantitative fund, and that went from Silver to Gold. It's an area that's not a huge part of their assets overall, but they have done very well there. I think they have expanded with a couple of new quantitative funds along the same lines. Then New America Growth, T. Rowe has done just really well with their growth picks.
Benz: There have been some manager changes there though, too, right?
Reichart: There have. There have been a couple of changes at that fund. Justin White is fairly new, but he was a successful analyst. I think combined with the underlying strong analyst bench, there is a reason I think that fund will do well long term.
Benz: You always provide a review of how the firm's funds are doing in a given time period. Year to date, when you go asset-by-asset class and look at the various T. Rowe Price funds, how are they doing, what do their batting average look like?
Reichart: If you look at diversified U.S. equity, about two thirds are leading their category peer group norms. International equity, it's about the same. Fixed income, about 46%; and then allocation, 91%. Pretty impressive there.
Benz: How about the allocation funds? What's the main driver of why such a large number would be exceeding their peer group averages?
Reichart: With the target-date series, the main target-date series, those tend to be a little more equity heavy. They are benefiting from a market tailwind there. But just generally, good performance and allocation decisions, too.
Benz: In terms of leaders and laggards, let's talk about some of those. You mentioned that the firm's growth side of the shop is performing really well. I assume that we will be talking about some of those names here in terms of the leaders.
Reichart: If you look at their Blue Chip Growth, New America Growth, Growth Stock--all those are posting gains that are well above the Russell 1000 Growth Index for the first half of the year. Bets like Amazon and Netflix are really paying off, and this is continuing on to build on strong 2017 performance.
Benz: How about laggards?
Reichart: Not too many. T. Rowe Price High Yield has been in the bottom quintile of the category. But that fund can have some pullbacks from time to time but has a very strong long-term record, and it remains Gold-rated.
Benz: Katie, thank you so much for being here to provide this recap.
Reichart: Great to be here. Thanks.
Benz: Thanks for watching. I'm Christine Benz for Morningstar.com.