William Stromberg is ready to take on the naysayers.
Even as investors continue to abandon actively managed mutual funds, the chief executive of T. Rowe Price Group Inc. is doubling down on stock picking. Stromberg, armed with a record that shows that the majority of the company’s funds outperform indexes even after charging higher fees, is taking steps from bolstering advertising to adding new products to lure clients.
“Over a market cycle, we’ll put up our results against passive any day of the week,” Stromberg said in an interview.
Stromberg is doing more than boast. He plans to expand the Baltimore-based firm’s distribution outside the U.S., create funds that invest in multiple asset classes and add data scientists to supplement the fundamental research the company has relied on for 80 years.
Challenging indexers will be a mighty effort. Investors have pulled $444 billion from funds run by stock pickers in the last 17 months while adding about $575 billion to mutual and exchange-traded funds tracking indexes.
“T. Rowe Price is a fine organization, but the forces of nature are lined up against them,” said Michael Rosen, chief investment officer of Angeles Investment Advisors in Los Angeles, which oversees about $25 billion in passive and active strategies. “I’m not sure the argument will resonate.”
T. Rowe Price hasn’t been immune from the shift to indexing. The company had $2.8 billion in net redemptions in 2016 after two years of modest inflows. Over the past five years the firm attracted a total of $7.7 billion in deposits. To put that in perspective, Vanguard Group Inc., known for its low-cost index products, has gathered about that much money each week this year. T. Rowe Price shares rose 9.6 percent over the past 12 months as of June 27 compared with a gain of 39 percent for the S&P index of asset managers and custody banks.
The company is vulnerable to further outflows and will have to spend more money “just to tread water, much less grow,” UBS analyst Brennan Hawken said in a May report in which he cut the rating on the stock to sell.
Stromberg thinks the firm’s record versus passive as well as larger rivals is a big advantage. On average, T. Rowe’s stock funds beat 75 percent of peers over the past decade, compared with 63 percent for Capital Group and 51 percent for Fidelity Investments, according to data compiled by Morningstar Inc. Fidelity and Capital Group, both known for their equity funds, manage $2.3 trillion and $1.5 trillion, respectively.
T. Rowe has specialized in picking stocks since it was founded in 1937 by Thomas Rowe Price Jr., an investor who favored growth companies. The firm still emphasizes fundamental research and hires money managers who often spend their whole careers there.