What’s in a name? In the competitive world of mutual funds, a fund typically has a nameplate that reflects its strategy and instantly tells investors what it’s all about. But not always, as was the case with the T. Rowe Price New America Growth Fund. And over time that became an issue for its portfolio manager, Justin White.

“The New America Growth name didn’t make sense,” says White, who took the reins of the fund in April 2016. “The fund was incepted in the mid-1980s, and apparently there was a period in the ’80s when ‘New America’ meant something, but that stand-alone meaning has disappeared.”

On the same day in March 2021, the fund was rechristened the All-Cap Opportunities Fund and switched its benchmark from the Russell 1000 Growth Index to the Russell 3000. As White explains, this fund has always been an all-cap product, but using the market capitalization-weighted Russell 1000 Growth Index as its bogey (which measures the performance of the large-cap growth component of U.S. equities) gave the fund a heavier tilt toward large- and mega-cap growth companies than he wanted.

“I’m benchmark-aware in that I tend to think about sizing my bets relative to the benchmark weights,” he says, noting that making too big a bet against, say, one of the FANG stocks making up a big piece of the Russell 1000 Growth Index could blow up the risk profile of the fund vis-à-vis its bogey.

The Russell 3000 is also market-cap-weighted, but it measures a broader swath comprising roughly 97% of U.S. equities. That not only reduces the gravitational pull of the largest of the large-cap companies, but it also gives White more flexibility with market-cap size and investment style boxes. In a sense, hitching the fund’s wagon to a new benchmark lets White return to the approach he used when he was an analyst on the T. Rowe Price media telecom team for nearly eight years, before he took over what eventually became the All-Cap Opportunities Fund.

“My coverage area spanned value to growth, small caps to large caps,” he says. “I had success as an analyst investing across different style boxes because I didn’t have a style-box-specific framework.”

Employing this flexible approach as a portfolio manager helps explain why the fund has been a top-quartile performer in Morningstar’s large-growth category during the past five years under White’s leadership (it also sports a top-quartile ranking over the 10- and 15-year periods). As part of that, the fund has produced a higher upside capture ratio and lower downside capture ratio than the category average over the five-year period, according to Morningstar.

In her report on the All-Cap Opportunities Fund last summer, Morningstar analyst Katie Rushkewicz Reichart noted that roughly half of the portfolio’s assets at that time resided outside of the large-growth section of the Morningstar style box, which she said supported the change from the Russell 1000 Growth Index to the Russell 3000. She added that the fund was expected to remain in the large-cap growth category, though fund rating company Lipper classifies it as a multi-cap growth fund. (Morningstar doesn’t have an all-cap style box category.)

Regardless, White says one of the reasons he pushed for the fund name and benchmark changes was that he felt growth investing’s period of outperformance could be running out of gas. He initiated the call for the changes in 2020 just as the pandemic was starting, though he emphasized it wasn’t related to the pandemic.

“I wanted the flexibility to pivot opportunistically the other way if the moment came where it made sense to own more value-oriented stocks,” he says. While it took a year for the changes to become official, White says he began repositioning the portfolio after it became likely that the changes would go through.

He said the Fed’s interest rate and inflation focus meant that for the first time in 12 years the central bank wasn’t going to rescue markets. “The thing that emboldened me to sell a lot of stocks was when I realized that inflation would be with us at a higher level and for a longer period, and that the Fed wasn’t going to bail us out because it had to slay inflation,” he explains.

Among his allocation moves, White closed out the fund’s position in Meta Platforms, formerly known as Facebook, given the uncertainty about the company’s strategic shift toward the metaverse. He also eliminated positions in global gaming platform company Roblox, Zoom Video Communications Inc. and Block Inc., the digital payments outfit formerly known as Square Inc. In addition, he sold shares in Google’s parent company, Alphabet Inc., as part of efforts to move some tech profits into real economy names he believes have attractive risk/reward profiles.

Nonetheless, Alphabet remained the fund’s third-largest position (with a weighting of 4.3% as of March 31). White still views the company as a valuable holding thanks to its dominant role in the internet and its ability to cash in on the digital economy.

Meanwhile, White added to stocks he believes trade at reasonable valuations and could benefit from higher interest rates, such as financial services giants Charles Schwab Corp. and Chubb Ltd. He also put money into companies that could do well in a rising rate or higher-inflation environment, including O’Reilly Automotive; Waste Connections, a waste collection and recycling company; and Middleby Corp., which makes equipment for the food services industry.

And he pounced on select opportunities in the energy sector. One of those is Halliburton Co., an energy services company that, among other things, rents pressure-pumping equipment to the U.S. fracking industry.

“The reality is that during the past five years there was huge underinvestment in the rig fleets, and the market is now running very tight,” White says. “The current high oil prices incentivizes for more production, but there aren’t any rigs available, and it takes a year-plus to bring new rigs online.”

Such conditions should produce a big price squeeze in day-rate rentals of Halliburton’s equipment, which he believes is not captured in analysts’ expectations.

“Despite oil prices going crazy year to date, there have been no revisions in earnings estimates for Halliburton, so they’re way too low for this year,” White says.

The portfolio repositioning has tempered the pain somewhat for this fund in the tumultuous early days of 2022. The fund lost 7.2% through April 7, but that was five percentage points better than the Morningstar large-cap growth category’s average loss, landing it in the category’s top quartile year to date.

Investment Pillars
White is backed up by T. Rowe Price’s sizable investment research team, which he credits for bringing to his attention the vast majority of holdings in the fund. Still, he employs his own selection method for which investment ideas ultimately make the cut. 

“It’s up to the P.M.’s judgment to figure out which companies they’re comfortable with and how big a bet they should make,” he says, adding that his approach to securities selection is based on a four-pillar investment framework that he has used since 2011, when he was an analyst.

The first pillar relates to quality. “You can’t just put it into a computer algorithm and say, ‘Here’s the quality.’ There’s a lot of pattern recognition over time that tells you if this is a good business with secular tailwinds at its back and whether it’s well managed,” White says. “It’s a collection of various factors, and there’s definitely a judgment overlay there.”

The next pillar is whether T. Rowe Price’s expectations for a company are above or below the consensus opinion. Then there’s a “better or worse” pillar that assesses the outlook for a company’s performance in the coming year. And finally, there’s a valuation pillar. “Valuation is more art than science,” White offers. “I’ve always had an appreciation that valuation does matter.”

His belief is that history rhymes over long cycles, and that periods of market multiple expansion and compression ebb and flow over extended periods. So he thinks the times could be a-changin’ when it comes to which areas will lead the market in coming years.

He says profitless tech is unwinding in a way that mirrors the Nasdaq bubble’s burst in 2000. “And with the economy overheating and the Fed raising rates to cool it down, it just feels like a different world now. I think people should be open-minded to the idea that market leadership could be quite different over the next five to 10 years than it was over the past decade. This fund hopefully will be able to capitalize on the shifting tides given that it has a flexible mandate and is able to opportunistically go from growth to value and from large cap to small cap.”