The T. Rowe Price Approach to Active Management
- 16 of our 18 diversified active U.S. equity mutual funds had positive hit rates over rolling five-year periods.
- A notable 89% of funds generated positive excess returns over both rolling 5- and 10-year periods.
- T. Rowe Price’s outperformance has tended to strengthen over time.
Investors experienced periods of high volatility during the past 20 years, with two strong U.S. bull markets giving way to two of the most brutal bear markets in recent memory: the collapse of the dot-com bubble in 2000 and the global financial crisis that began in 2007.
Throughout, T. Rowe Price remained committed to disciplined, active investment management. Our research shows that long-term U.S. equity clients have been rewarded.
Note that past performance data throughout this material are not reliable indicators of future performance. All funds are subject to market risk, including possible loss of principal. For more information on the T. Rowe Price funds used in this study, including fund performance, please visit troweprice.com/complete-active-study and troweprice.com.
Outperformance improved over time
An extensive study by T. Rowe Price shows that we excelled through the many market environments of the past two decades. A majority of our 18 diversified active U.S. equity mutual funds beat their benchmark across multiple time periods over 20 years or their lifetime.1
Moreover, our outperformance tended to strengthen over time. Fifteen of the 18 funds had positive hit rates over rolling three-year periods and 16 over five-year periods, while 16 were ahead over 10-year intervals.2 A notable 89% generated positive annualized excess returns over both rolling 5- and 10-year periods, underlining that it is frequently worth waiting for our long-term active approach to pay off.
A notable 89% generated positive annualized excess returns over both rolling 5- and 10-year periods...
Actively managed large-cap funds proved worth
The study challenges the commonly held belief that it is not possible for active managers to add value in what is widely regarded as the world’s most efficient capital market. The majority of our U.S. large-cap funds beat their benchmark over all four of the time horizons examined.
The hit rate records the percentage of times a fund beat its designated benchmark, net of fees and trading costs, over a specified time period (say, 10 years). Think of this as a measure of how often a client might look at his or her monthly statement and find that a fund has outperformed for that time period.
We’ve defined a positive hit rate as a fund beating the performance of its designated benchmark in more than half of the periods measured.
In-depth research from longstanding team
We attribute our success primarily to careful stock selection and in-depth fundamental research, conducted by our long-tenured investment team.
T. Rowe Price employs 154 equity research professionals who together cover almost 2,500 public companies, equivalent to 63% of global public equity markets, as measured by market capitalization. We have a history of developing and retaining talent. On average, our portfolio managers have spent 15 years at the company and 20 years in the investment industry, giving them extensive experience in a wide range of market environments.
Independent academic research affirms our approach: Active equity managers, as a group, have been shown to have the skill to select stocks that outperform the broader market, before costs,3 while stable, longstanding active teams appear more likely to excel.4
Our own study shows that a skilled active management approach can help navigate challenging market conditions.
Look to the long term
The factors above will remain central to our approach.
We select stocks with potential to create long-term value. The strength of our investment process and research platform gives us confidence that T. Rowe Price can continue to create value for clients over longer time horizons.
Call 1-800-225-5132 to request a prospectus, which includes investment objectives, risks, fees, expenses, and other information that you should read and consider carefully before investing.
T. Rowe Price Investment Services, Inc., Distributor.
For additional information on the complete analysis, visit troweprice.com/complete-active-study.
Russell Investment Group is the source and owner of the trademarks, service marks, and copyrights related to the Russell indexes. Russell® is a trademark of Russell Investment Group.
1The study spanned the 20 years up to the end of December 2016 for older funds or since inception for newer ones and measured performance net of fees and trading costs. It covers 18 diversified active U.S. equity funds advised by T. Rowe Price, omitting 2 institutional funds that are clones of other funds to avoid double counting. Benchmarks included the S&P 500, Russell 1000 Growth, Russell 2000 Growth, Russell 1000 Value, Russell 2000 Value, Russell 2000, Russell Midcap Growth, and Russell Midcap Value Indexes. Russell Investment Group is the source and owner of the trademarks, service marks, and copyrights related to the Russell indexes. Russell® is a trademark of Russell Investment Group. Fund performance was measured against the designated benchmarks over rolling 12-month and 3-, 5-, and 10-year periods.
2Hit rates are the percentage of times a fund outperformed its designated benchmark in a given period.
3Including research by Professor Mark Grinblatt of UCLA and Professor Sheridan Titman of the University of Texas.
4According to research by Professor Joseph Golec of the University of Connecticut.
- Learn more about T. Rowe Price mutual funds.