2015 U.S. Lipper Awards focus on funds with steady returns
(Story refiled to correct spelling of Hotchkis in final paragraph)
Fund manager Jerome Clark counsels discipline in the face of adversity - a fitting approach for a former U.S. Marine officer.
As creator and leader of target-date retirement funds at T. Rowe Price Group Inc, Clark's philosophy proved its worth after the 2008 financial crisis when he kept a greater portion of assets in stocks than the competition and ended up reaping big rewards when markets rebounded.
Clark, 52, and his team at the Baltimore-based fund firm even moved billions of dollars from bonds to stocks to preserve the asset ratios in these funds.
Many investors questioned him about whether it was right to continue holding stocks. But Clark knew there would be bull and bear markets and that bonds had their own limitations.
"We didn't see it as the end of the world," Clark said. "We saw it as a correction."
Clark's track record in managing through the chaos won him the 2013 Award for Excellence in Fund Management from Lipper, the funds research unit of Thomson Reuters Corp. Lipper cited the performance of 10 of Clark's funds, including the Retirement 2035 fund, which has also been recognized in prior years.
T. Rowe's teamwork in stock picking helped mold Clark's steady approach. He joined the company as a quantitative analyst in 1992, fresh from a posting as a math instructor at the U.S. Naval Academy in Annapolis, Maryland.
The son of a U.S. Air Force officer, he graduated from the Naval Academy in 1983 as a Marine officer and went on to postings in Japan and graduate school. At T. Rowe, he subsequently ran bond portfolios and started the target-date funds lineup in 2002.
Over the years, his portfolios have consistently had more money devoted to equities than most target-date funds. For instance, the T. Rowe Price Retirement 2035 Fund recently had 87.6 percent of its assets in equities, compared with 85.7 percent and 71.9 percent for similar funds offered by competitors Vanguard Group Inc and Fidelity Investments, Lipper data shows.
The bigger tilt toward stocks helped when markets took off, starting in 2009. Clark's 2035 fund returned 11.85 percent for the three years ending February 28, 2013, beating 96 percent of peers, including the competing funds from Vanguard and Fidelity. Clark's five year-numbers are strong, too, according to Lipper.
The discipline and savvy navigation of difficult market conditions impresses clients such as Ed Grass, treasurer of North American operations of drugmaker Sanofi SA, who oversees his company's retirement plans.
Grass praised the decision to stay the course during the financial crisis and said it was a reason he kept T. Rowe funds available to Sanofi employees.
"Jerome is an individual who is strong with his convictions," Grass said. "We want that, then we know what to expect" when assembling a lineup of funds.
Also helping Clark shine is T. Rowe's strong underlying lineup used to fill the retirement funds, said Jeff Tjornehoj, head of Lipper Americas Research. Clark can put money in funds such as T. Rowe's Value Fund and Overseas Stock Fund,, which both beat 92 percent of peers for the three years ended February 28.
"He has enough strong funds to choose among he doesn't need to make bets on riskier assets," Tjornehoj said.
Investors planning to retire around 2040 can expect Clark's funds to have around 90 percent of their assets in domestic and international equities, plus or minus 5 percent. When investors get within 25 years of retirement, the ratio of equities will start to drop, hitting 55 percent at the year of retirement, for example.
The funds are designed to build up assets until a worker retires and then to help maintain savings throughout retirement, Clark said.
Not everyone agrees with this approach. Retirement fund researcher BrightScope has faulted T. Rowe Price's target-date lineup. Savers would do better to own no equities at all when they stop working to avoid possible shocks to their savings plans, the firm said.
"In our opinion, you should be least volatile right before retirement," said BrightScope head of research Brooks Herman.
In a BrightScope report released last summer, the average among target-date families was 42 percent of assets in equities at retirement. No family of target-date funds had zero.
But Clark said eliminating equities would be appropriate only in limited cases - for instance for someone who planned to buy a house on the day they stopped working.
Better to stay with the higher equity allocations and take the heat from critics.
"It's really just that we're further away from having zero-percent equities than most other people," he added.
(Reporting by Ross Kerber. Editing by Aaron Pressman, Beth Pinsker and Andre Grenon)