T. Rowe Price (again) snags target-date fund honors

Fri Mar 9, 2012 12:09am EST

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NEW YORK, March 9 Reuters) - Fund manager Jerome Clark is no stranger to the winner's circle.

Over the last three years, Clark has won his firm, investment adviser T. Rowe Price Group, awards and recognition for the target-date funds he manages - and this year was no exception.

On Thursday in New York, the Baltimore-based firm won seven of the nine 2012 Lipper U.S. Fund Awards for superior performance in mixed-asset target-date funds. T. Rowe also grabbed two of the eight awards in the five-year category. Clark oversees seven of the award-winning funds.

"Any time you can win in multiple categories, in multiple years, that shows you're doing something right," said Tom Roseen, head of research services at Lipper, a Thomson Reuters unit.

Target-date funds appeal to hands-off investors because they automatically change stock and bond allocations over time so that safer investments become more prevalent as retirement approaches. Mixed-asset funds can hold a variety of stock, bond and money market funds.

Clark's winning funds include the T. Rowe Price Retirement 2040 Fund, which had an annualized return of 17.7 percent for the three years ended November 30, compared with the group's 14.4 percent average annualized return, according to Lipper, which uses a proprietary method to compute risk-adjusted returns and award funds that show consistently superior performance.

The Lipper winner also came out on top for the 5-year group, sporting a return of 0.87 percent. That outpaces the category average of a loss of 0.89 percent, according to Lipper. The fund's expense ratio is 0.76 percent.

T. Rowe target-date funds hold about 10 percent to 15 percent more equities than their competitors, Clark said. The precise allocation depends upon the fund.

"We are actually in the process of increasing our exposure (to international equities), moving it up from 20 percent to 30 percent," Clark said. "There's great opportunity internationally."

Some funds that make up a significant portion of the equity component within the target-date funds include the T. Rowe Price Growth Stock Fund. Clark has also diversified into sectors such as high-yield and emerging market bonds, mining funds and real estate investment trusts, or REITs.

RENEWED POPULARITY

The Lipper awards and recognition come as target-date fund popularity soars, despite a downturn in 2008 that left many retirees rattled.

"After 2008, people threw in the towel after losing a lot of money," Roseen said. "They said, 'We can't do this anymore.' Slowly, but surely, people are investing again, but investing where they don't have to make a decision other than a retirement date."

The popularity of these easy-to-understand funds is surging. Target-date funds currently hold about $400 billion in assets. Financial information firm BrightScope expects assets to hit $2 trillion by 2020.

"It feels like overnight they've become the primary retirement investment for millions of American workers," said Ryan Alfred, president of BrightScope.

T. Rowe Price said its mutual funds generated $2.2 billion in inflows in the fourth quarter. Of that, target-date fund inflows contributed $1.5 billion - or 68 percent.

"They are popular because they are simple and they resonate," said T. Rowe's Clark. "Many investors are hands off. They want something that makes sense and doesn't take up a lot of time."

A LITTLE RISKY?

While many target-date funds now have a smaller percentage of equities than they did before 2008, T. Rowe did not decrease its allocation. Investors, said Clark, are far more vulnerable to inflation than to a market slump, and that high-equity exposure helps protect their lifestyle after retirement.

"It's better for investors to be uncomfortable in a 2008 market than devastated in 30 years because they didn't have adequate equity exposure," he said.

T. Rowe's so-called glide path is "more aggressive" than those of other funds in a BrightScope study, said BrightScope's Alfred. "Glide path" is a term used to describe the formula that target-date funds use to change their allocation as the funds near their target retirement date.

However, "T. Rowe makes it very clear in their prospectus that the funds are 'not designed for a lump sum redemption at the target date,'" Alfred said. "So while they are more aggressive in glide path design, they are one of the few firms to explain this clearly to investors."

Fees for T. Rowe's target-date funds range from 56 to 76 basis points. The average for institutional target-date funds is 75 basis points, according to BrightScope.

The awards given on Thursday were for fund performance for the period ended November 30, 2011.

"T. Rowe has done a really good job of dominating the target-date area," Lipper's Roseen said.

(Reporting by Chelsea Emery, Editing by Jilian Mincer and Jan Paschal)

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