T. Rowe Price Group (NASDAQ:TROW) got a significant boost on May 12 when it reported an increase in assets under management for the month of April. The stock jumped on the news, and as of Tuesday's close, it was down about 6% in 2020. T. Rowe Price has significantly outperformed its peers this year, and the stock is up about 10% over the trailing 12 months. That's a pretty good rate of return in an asset management industry rocked by equity outflows (and 0% interest rates) as investors flee to the safety of money market funds and other more stable investments.
So while this was a good bounce-back for the company, investing is all about the long term. Is this a stock that should be part of your portfolio?
The April update showed that assets flowed back into T. Rowe's equity funds, which had seen $5.7 billion in net outflows in the first quarter while fixed income and money market funds had $3 billion in inflows.
Through the first quarter, total equity assets had plummeted by $130 billion to $569 billion, while fixed income and money market assets were down about $1.6 billion to $146 billion, largely due to market depreciation.
But that flipped in April, as assets in equity mutual funds climbed 12% to $370 billion and fixed income/money market funds dropped 1% to $72 billion. Multi-asset funds grew 10% to $171 billion, while institutional and separate account assets grew 13% to $505 billion.
Overall, T. Rowe price's assets under management grew 11% to $1.1 trillion at the end of April. It's indicative of the long-term growth that T. Rowe Price has enjoyed over the past decade, relative to some of its peers, like Franklin Resources. In 2010, Franklin had $645 billion in AUM, or about 33% more than T. Rowe Price. Now, through this April, T. Rowe has about 83% more AUM than Franklin, not counting the assets of Legg Mason, which Franklin purchased in February.
Price is right
The asset manager has navigated the first couple of months of the pandemic in pretty good shape. There are several key differentiators for T. Rowe. One is its diversity of assets. Its assets are pretty well split, with $620 billion in mutual funds assets and $505 billion in separate account and subadvised assets. Also, the company gets additional revenue as top 10 provider of 401(k) recordkeeping services. It derives about 10% of its total revenue, or about $135 million in the first quarter, from the recordkeeping business.
Also, in an era where ETFs and passive investment products are in vogue, T. Rowe Price prides itself on its stock-picking prowess and its rigorous investment processes. The proof of its success is in the returns, as three-quarters of all its funds have outperformed the Morningstar median over 10 years, including 84% of its multi-asset funds.
The other major advantage T. Rowe Price has is a great balance sheet, with virtually no debt, and about $1.5 billion in cash and cash equivalents and $5 billion in cash and liquid investments. That position enables the firm to keep investing in its capabilities and new products even during volatile markets. An extended period of zero to low interest rates will hurt earnings, but relative to its financial industry competitors, T. Rowe Price is worth holding if you own it and worth considering in a diversified portfolio if you don't.