In early 2017, Mark Finn, manager of the T. Rowe Price Value Fund, noticed something a bit off about a meeting he attended with the top executives at General Electric, a longtime holding in the fund and over the years one of its largest positions. Jeffrey Bornstein, then the company’s CFO, seemed to be waffling on GE’s ability to meet its $2-a-share earnings goal, preferring instead to stress the “quality of earnings.” Sensing something was up, Finn and his analysts determined that things were going downhill more quickly than management seemed to be letting on.

The decision to exit the stock proved to be a decisive move, and the fund avoided a massive drop in GE’s stock price later in the year after the company’s earnings came up short of expectations.

GE has been just one of a number of minefields the fund has navigated since Finn took over in 2010. One of the first mines he avoided was Avon. He inherited the cosmetics company from the previous portfolio manager, and it was having a hard time competing with online retailers. As a new manager, he maintained the position for 18 months before finally selling the shares at an average price of $15. The stock now trades at just over $2.

If a fund holding’s fortunes seem to be heading south, Finn tries to determine the reasons and find out whether there’s a clear path back on course or if something more damaging is afoot. “One thing I do particularly well is avoid problems,” he says. “If a thesis is not playing out, if margins are not expanding, I have to understand why.”

One of the fund manager’s core skills is buying reasonably priced stocks of high-quality companies facing some sort of controversy or investor neglect. Sometimes, as in GE’s case, the seed for a sell decision may take hold because the fund managers have misgivings after meeting with a company’s management. At other times, the original thesis for owning the stock simply isn’t panning out.

On Finn’s watch, the fund has managed to excel in both the long and short terms. In 2017, a difficult year for value funds, the T. Rowe Price fund’s institutional class shares returned 19.16%, while the Russell 1000 Value index returned only 13.66%. The fund won an average annualized return of 9.19% over three years while the index returned only 8.65%, and the fund’s 15.17% five-year return, meanwhile, beat the index’s 14.04%. The 8.56% annualized return over 10 years beat the index’s 7.10%.

Finn says he’s able to get at the root of problems using skills he picked up over a varied career. After graduating from the University of Delaware with a degree in accounting, he took a job with Price Waterhouse and later obtained a certified public accountant designation. Five years later, he started with T. Rowe Price in its accounting division. He soon realized that his passion was investing, and he obtained a CFA designation in the early 1990s.

For most of that decade, he focused on bankruptcy and distressed debt investing. By 2001, he had spent a lot of his time analyzing high-grade utility bonds that later became high-yield, lower quality credits. Many of these investment-grade utility dropouts became fodder for equity ideas, which he shared with T. Rowe Price’s stock analysts. In 2004, he joined the equity division as an analyst for utilities, tobacco and other industries.

He believes the variety of his experiences helps him understand bond covenants, capital structures, the impact of bond ratings and other aspects of companies that traditional equity analysts might overlook, even though these qualities reveal key signs about a company’s financial health. When he’s analyzing a stock, he often finds himself consulting with T. Rowe Price’s high-yield bond analysts to get their perspective on the potential impact of a company’s problems.

“Bondholders drive the bus during a controversy,” he says.

But stock analysts can determine whether a problem with a company is temporary. Finn took advantage of the market rout in the first week of February to add to the fund’s holdings in Johnson & Johnson as well as Anthem, two high-quality health care companies that declined in the sell off. J&J sold off after reporting a solid quarter because of fears of increased competition for Remicade, one of its blockbuster drugs. But Finn thinks J&J is still a solid choice because of its strong pharma pipeline. Anthem, a managed-care company, declined after JPMorgan Chase, Amazon and Berkshire Hathaway announced they were forming a health-care company for U.S. employees.  While Finn does see a potential long-term threat from the plan, he says it will likely take years before this kind of consortium could have any meaningful impact on Anthem’s business model.

Other holdings look cheap because they’ve either been shunned or overlooked by investors for years. Tyson Foods, which the fund has owned for over three years, sells at about 13 times earnings, up from around 11 times a few years ago. Nonetheless, it’s cheap next to comparable consumer brands such as Hormel. Tyson continues to change its image from a chicken manufacturing facility into a more branded, recognized product name that sells prepared foods such as nuggets and fillets.

Another fund holding, Keysight Technologies, has strong free cash flow and trades at just 14 time earnings. The hardware and software maker, created by a spinoff of Agilent Technologies in 2014, produces electronic testing equipment and will help Verizon deploy its 5G networks.

“Passive Investing Is Peaking”

The work of active managers might seem quaint or outdated. As passive and quantitative mutual fund and ETF investments continue to gobble up market share, Finn belongs to a style of investing that requires him to meet with the management of companies, go beyond numbers and make judgment calls. In a report last year, Moody’s Investors Service estimated that passive investments would overtake active investment market share sometime between 2021 and 2024.

But Finn, 55, believes his fund’s ability to ferret out value—and sidestep problems like GE’s—illustrate the value of active management. At the same time, the fund’s low expense ratio of 0.64% for the institutional class means it isn’t that much more expensive than many indexed products.

“Passive investing is peaking,” Finn maintains. “We are later in the economic cycle, a time when the divergence between the fortunes of companies is growing. Those conditions provide fertile ground to employ active management with strong analysts and a manager willing to dig for new ideas.”

Nonetheless, he says the growth of passive and quantitative investing has made the role of an active manager more challenging since he took over the fund a little over eight years ago. The increase in indexed investments means that stocks, even those within the same sector, have a higher correlation with one another than they have in the past. Finn says he tries to differentiate the portfolio by uncovering attractive company attributes that others aren’t seeing, buying stocks on the cheap and allocating 3% to 5% of assets to his highest conviction names. The rise of quantitative investing has shortened the time it takes for stocks selling at unusually cheap prices to pop up on the radar screens. “When you have a unique insight, the time it remains unique is shorter,” he says.

Investor interest will also depend on whether value or growth is doing better. After the 2016 election, it seemed value would be the winner. Investors expected higher inflation and interest rates that would benefit financial institutions—a dominant sector in the value space. But as inflation remained subdued in 2017, financials and other cyclical sectors lost ground to more growth-oriented technology and health-care stocks. By the end of the year, growth stock returns had outpaced value by a hefty margin.

Still, Finn thinks tax reform and a growing economy could have a positive influence on some value stocks this year. The now slashed corporate tax rate would likely favor industries and companies deriving all or most of their earnings from U.S. operations, and many of these are value stocks in sectors such as retailing, consumer staples and financials. Large multinational firms that have already figured out ways to lower their tax rates by stashing profits overseas, a group that includes many growth-oriented technology companies, would receive less of an immediate boost.

Financials, which account for around 25% of the T. Rowe Price Value Fund’s portfolio, are already benefiting from a less onerous regulatory regime under the Trump administration. Finn cites Wells Fargo, a longtime top 10 portfolio holding that “would probably have had a harder time with its cross-selling controversy under the previous administration.”

Investor expectations for rising rates, which typically benefit financials, are also helping the group. But financials and other cyclical value stocks are particularly sensitive to economic ebbs and flows, Finn warns, and if GDP growth fails to live up to expectations, the benefits of owning them could fade.