(PUB) Investing 2015

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Winds of Change at T. Rowe Price The Contrarian | Russel Kinnel

Mark Vaselkiv has done an outstanding job at Silver- rated T. Rowe Price High-Yield PRHYX . He has the assistance of two comanagers and 12 analysts. Greg McCrickard has been a steady hand at T. Rowe Price Small-Cap Stock OTCFX for more than 20 years. The Silver-rated fund has consistently outper- formed. He taps the work of T. Rowe’s equity analysts and has the help of associate portfolio manager Frank Alonso. The fund is closed to new investors. Dan Shackelford has made T. Rowe Price New Income PRCIX a standout. The Silver-rated fund has done a fine job mixing caution with aggression to provide a nice return without extreme downside. Shackelford draws on the input of six sector managers in fields such as corporate bonds, emerging markets, and high yield. Thus, it could be fairly said this is even more of a team effort than most T. Rowe funds. Shackelford also has the help of two dedicated quantitative analysts. How T. Rowe Price Handles Manager Changes T. Rowe Price does a fine job handling manager changes, so don’t jump the gun on these funds. With retirements, the firm typically has a long lead time and shares that information with shareholders. It announced Rogers’ and Athey’s retirements along with their replacements nearly two years in advance. Internally, that gives the next manager plenty of time to work with the team and get to know the holdings in the portfolio. For shareholders, it means we have time to assess the changes well in advance. In addition, manager changes at T. Rowe Price rarely mean a change in strategies. We’ve seen tweaks at T. Rowe Price New Era PRNEX , but more commonly, you’d be hard- pressed to spot a manager change just by watching the portfolio. K Rich Whitney is not a named manager but heads T. Rowe Price’s asset-allocation effort.

In October 2015 , Brian Rogers will step down from his role of managing T. Rowe Price Equity Income PRFDX . Rogers will be 60 years old when he retires. In 2016 , firm CEO James Kennedy will retire at the age of 62 . This is pretty standard practice at T. Rowe Price. Preston Athey retired from T. Rowe Price Small-Cap Value PRSVX at age 64 . Typically, portfolio managers retire in their early 60 s. That’s older than at some firms and younger than at others. It gives us a good idea for when a manager might retire in the future. And from the looks of it, there will be some big shoes to fill around 2018 should managers continue retiring around age 60 . This could be a challenge as T. Rowe Price has suffered some key defections from younger managers who might have been elevated to a bigger role. The firm lost Joe Milano of T. Rowe Price New America Growth PRWAX , Kris Jenner of T. Rowe Price Health Sciences PRHSX , and Rob Bartolo of T. Rowe Price Growth Stock PRGFX . T. Rowe Price funds are very much team efforts, as analysts, comanagers, and investment committees support the lead manager. Still, the lead manager is crucial to the fund’s success. Looking at the ages of some of the firm’s top managers, there are four plus one group head who turn 60 in 2018 . Brian Berghuis of T. Rowe Price Mid-Cap Growth RPMGX is a past Morningstar Fund Manager of the Year winner. This $26 billion fund has a Morningstar Analyst Rating of Gold thanks to his remarkable record and clear strategy. Berghuis works closely with the rest of the growth team, but taking over a mid-growth fund this big will be quite a challenge for his successor.

Our Contrarian Approach I go against the grain to find overlooked funds that may be ready to rally.