UPDATE 3-T. Rowe Price net rises; reports rare investor outflow

Tue Jan 29, 2013 3:23pm EST

* Investment advisory fees up 19 pct

* Customers pull out $4.2 billion, mainly from non-U.S. portfolios

* CEO Kennedy latest to support "floating NAV" for some money funds

* Shares down 1.2 pct

By Ross Kerber

Jan 29 (Reuters) - Asset manager T. Rowe Price Group Inc's fourth-quarter profit rose 23 percent on higher investment advisory revenue, but the Baltimore firm reported on Tuesday a rare outflow of customer cash for the period.

The results saw the company's shares fall as much as 5.8 percent but by late on Tuesday they were down just 1.2 percent from Monday's all-time closing high of $72.18.

Shares of T. Rowe Price have climbed 11 percent so far this year on expectations that the stock fund-laden firm will benefit from a recent investor turn towards equities.

T. Rowe Price's assets rose $2.4 billion to a record $576.8 billion during the fourth quarter. But that was only because market gains and income offset the $4.2 billion that customers withdrew, mainly from institutional portfolios which suffered from what the company called "performance challenges."

Overall, T. Rowe said performance at most of its funds was strong and analysts cautioned against overreacting to the short-term trend.

"While we're not used to seeing TROW in outflow, we think it should fare better" in the current quarter, Nomura analyst Glenn Schorr wrote.

The outflows were primarily from institutional accounts that use investment strategies similar to T. Rowe's $485 million Global Stock mutual fund that is sold to retail investors. The fund, which buys stocks from all over the world, trailed 55 percent of similar funds last year and had an outflow of $166 million, according to data from Lipper, a unit of Thomson Reuters.

David Eiswert took over as manager of the fund in October, replacing Robert Gensler, who has retired.

In a telephone interview, T. Rowe Price Chief Executive James Kennedy said the institutional portfolios' performance has improved lately. "Clients are seeking performance, and we did not do well for those clients in those portfolios," he said.

Kennedy said the company was doing well overall, however. In all, 78 percent of its mutual funds outperformed the Lipper average return for their categories over the three years ended Dec. 31, T. Rowe Price said.

Many of the firm's largest funds attracted considerable cash from investors last year, according to Lipper data. The $20.4 billion New Income Fund, which buys investment-grade bonds, took in $3.9 billion last year and the $15.4 billion Blue Chip Growth Fund, which buys stocks of fast-growing companies, took in $1.6 billion.

T. Rowe Price reported net income of $232 million, or 88 cents per share, for the fourth quarter compared with $188.4 million, or 73 cents per share, a year earlier.

Analysts surveyed by Thomson Reuters I/B/E/S on average had expected 89 cents per share.

Investment advisory fees increased 19 percent to $677.6 million.

FLOATING NAV FOR SOME FUNDS

Separately, CEO Kennedy said he would accept allowing the net asset values of some institutional money market funds to vary, or "float," away from their traditional fixed price of $1 per share, as a way to reduce the risk that large clients would rush to pull out cash during a crisis.

T. Rowe Price has about $15 billion in money funds, a modest slice of the $2.6 trillion industry.

Larger money fund sponsors and the industry's main trade group have resisted calls to drop the fixed $1 per share value, worried about losing investors. But some, including brokerage Charles Schwab Corp, have backed the idea lately for some institutional funds, which could presage a compromise with regulators in Washington.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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