I'm really not a mutual fund guy. Even though there are times and situations in which mutual funds are good options for almost everyone, I still prefer the chills, thrills, and occasional spills of managing my own money on a very active basis. Still, I happen to have the utmost respect for T. Rowe Price
If we judge by fourth-quarter results, T. Rowe still seems to be doing a fine job of serving its clients. Net revenue rose almost 17%, while investment advisory fee income climbed by 18%. And while investment management is generally a pretty profitable business to start with, T. Rowe generated even more profits from the business -- it boosted the operating margin by more than a full point and grew operating income at about 20%.
You can also see the signs of popularity and success in the asset flows. Average assets under management jumped by more than 16% in the fourth quarter, and the company reported $5.2 billion in customer inflows during the quarter. It seems as though mutual fund investors like the notion of buying successful funds and not being laden with loads and onerous fees.
There's no doubt that T. Rowe runs a stable of high-quality funds. Among publicly traded peers, only Calamos
That said, certain aspects of this company might trouble some investors. First, a considerable portion of the business rests on equity investments, though I'd rebut the concerns about what happens if the market crashes again by pointing out that T. Rowe has lived through those times on a few occasions already.
Second, you could argue that the company leaves money on the table by not charging loads, using an advisor/broker distribution channel, or offering hedge funds. I, frankly, am not bothered by that latter complaint, either-- T. Rowe built itself around a particular culture, and that culture has served it well so far. In my opinion, you don't mess with a winning formula just to make a couple of extra bucks.
For all the respect I have for this company, I'm not a buyer. I can't calculate a fair value much above $82 a share (and even that's a bit of a stretch), and that just doesn't leave enough room to entice me. Still, this is an exceptionally well-run company in an industry that shows no signs of slowing down. If I already held the stock, I certainly wouldn't be in any hurry to sell.
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Shannon Zimmerman has recommended four T. Rowe Price funds -- Growth, Health Sciences, New Horizons, and Real Estate -- to readers of his Motley Fool Champion Funds newsletter. To see what other funds Shannon is recommending, take a free, 30-day trial to Champion Funds.
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).