Solid succession planning and a strong analyst bench work in its favor.
This article was originally published in the August 2017 issue of Morningstar FundInvestor.
Earlier this year, Morningstar visited T. Rowe Price's TROW Baltimore headquarters. We wanted to check in on changes that have occurred at the executive, fund manager, and analyst levels and see how well the firm is positioned as industry assets continue shifting to passive investments.
On the whole, we came away encouraged with how T. Rowe Price has handled personnel changes while retaining the research-focused culture that has long defined it.
We've illustrated our shifting views on T. Rowe's funds with this graphic depicting upgrades and downgrades in recent years. It was published this summer in Morningstar FundInvestor before International Stock was upgraded.
Strong Analyst Bench
Analyst-driven research is key to most T. Rowe Price funds, so a stable, effective team is important. The firm has raised its game in this respect, moving out underperformers and transferring a few analysts internally to bolster its ranks. Following disappointing stock-picking in the consumer discretionary sector, the firm created a new consumer sector lead role (a position that already existed for other sectors) to improve global collaboration, add accountability, and boost team morale. It also transferred an analyst from the high-functioning energy team and hired back someone who'd previously worked at T. Rowe Price to add depth. The business-services team also saw a couple of internal moves. These changes should help T. Rowe's equity team function better, which is critical to fund performance.
The changes haven't been as disruptive as the departures the equity team experienced in 2014, when three members of its healthcare team left to start a hedge fund and T. Rowe Price had to rebuild more abruptly. It's also encouraging that the firm has continued to recruit at top business schools, even as active managers on the whole have faced business pressure with money moving to passive funds. (2016 was the first calendar year that T. Rowe Price saw firmwide net outflows across its mutual funds since 2000, so it has held up better than most active managers.)
With a fair amount of hiring the past few years, the directors of research have worked to effectively bring new hires up the learning curve--especially as some have seen only one type of market (up) in their careers; here, T. Rowe Price's most experienced managers provide meaningful context and mentoring. The firm has also built an admirable associate analyst program that has helped boost stock coverage of small- and mid-cap companies. Some promising associates work exclusively with a portfolio manager, including at T. Rowe Price Mid-Cap Value TRMCX and T. Rowe Price Small-Cap Value PRSVX. The bar is high for promotion to full analyst, though the program gives the firm a glimpse into prospective candidates.