There has been a lot of uncertainty in the market this year given the pandemic, the state of the economy, and the wild election. The stock market has had its share of ups and downs, and that will probably continue until there is a proven vaccine for COVID-19.
But it will be hard for anyone to find a more stable stock than T. Rowe Price Group (NASDAQ:TROW). If you are looking for some ballast in your portfolio for stability amid the shifting tides, then consider buying shares in this asset management firm.
Double-digit earnings growth
The past few months have been difficult for most companies, particularly those in the financial sector, but for this Baltimore-based mutual fund manager, it was another strong quarter. T. Rowe Price saw its net income increase 15% year over year to $602 million, while earnings per share climbed nearly 20% to $2.55 per share. Revenue went up 12% year over year to $1.6 billion, with most of the revenue, $1.47 billion, coming from investment advisory fees, which increased 12.7%. Revenue from fees for mutual funds was $939 million, up 6.6%, while revenue from fees from sub-advised funds, separate accounts, and investment trusts was $530 million, up 25% from the third quarter of 2019.
Overall, assets under management increased 16% to $1.3 trillion. The firm had net outflows of $5.3 billion mainly from its equity funds, given the volatility in the third quarter. Those outflows were partially offset by $1.4 billion in inflows into fixed income and money market funds. Assets were buoyed by T. Rowe's acquisition of the PNC Bank's Stable Value Fund in September, which brought $1.2 billion in assets.
Also, T. Rowe Price finally got into the exchange-traded fund (ETF) business this quarter, launching its first four ETFs in August: the Blue Chip Growth, Dividend Growth, Equity Income, and Growth Stock ETFs. The firm also rolled out its sixth Japanese investment trust, the Global Technology ITM, and is planning to introduce a fixed-income fund, the Short Duration Income Fund, in December.
T. Rowe's competitive advantages
T. Rowe's stock price is up about 8.5% this year through Tuesday's close, which beats the S&P 500 (up 4.3%) and the financial sector (down 21%). The asset manager has a few key competitive advantages that investors should know about.
One, T. Rowe Price is largely considered an active manager, despite introducing four new ETFs. Not only that, the firm is considered one of the best active managers in the business, with 85% of its equity funds and 90% of its multi-asset funds outperforming the Morningstar median over the last 10 years. Also, 65% of its equity funds and 92% of its multi-asset funds have bested the passive peer median over the last 10 years, which was particularly strong for the indexes. Moving through the current recession and recovery, T. Rowe's active management prowess against the indexes should be even more pronounced for the next few years, which should lead to more inflows and revenue.
Two, the reason the company has been able to roll out so many new funds, like the ETFs and the short-duration fund, is because of its pristine balance sheet. The company carries no debt and has $2.2 billion in cash and cash equivalents, up from $1.8 billion at the start of the year, and $4.3 billion in cash and discretionary investments, up from $3.6 billion at the start of the year. In addition to the product rollouts, it enabled the funding of $155 million in its facilities and technology. Moreover, the great balance sheet has made it possible for T. Rowe to maintain its status as a Dividend Aristocrat, with 33 straight years of annual dividend increases. In October, T. Rowe declared a $0.90-per-share dividend, good for a healthy yield of 2.8%.
So, while there may be uncertainty in the months ahead, T. Rowe is one stock that will deliver income and equity through the ups and downs.