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.”