There are about 20 money management firms in the U.S. with more assets than T. Rowe Price (TROW), but it’s a top performer in the field. The firm has registered a profit every quarter since it went public in 1986.
It has seen an outflow of investor cash only twice in the past five years. Unfortunately, the second instance showed up in the firm’s most recent earnings report, for the third quarter of 2011.
Investors withdrew $2.6 billion from T. Rowe Price in the quarter. As a result of that shift and $64.8 billion in market losses, the firm’s assets shrank to $454 billion.
Most of the redemptions came from institutional investors. When stock markets decline, as they did in the third quarter, T. Rowe Price suffers more than some others, because its funds are skewed more toward equities, the firm says. With the stock market having recovered from its early October lows, T. Rowe Price likely has seen an increase in assets.
One advantage the firm has is that nearly two-thirds of its assets are in retirement accounts and variable-annuity portfolios. Investors generally don’t pull their money out of those investments as frequently as with other account types.
That gives T. Rowe Price an advantage over its competitors, who aren’t as concentrated in the retirement and variable annuity areas.
Target-date retirement funds represent the fastest growing product for the firm. At the end of the second quarter, target-dated funds accounted for 13 percent of T. Rowe Price's asset total, according to Morningstar. The company also is expanding overseas, buying stakes in asset managers there.
T. Rowe Price’s profit rose 9.6 percent to $184.6 million in the third quarter from $168.4 million a year earlier. Revenue gained 16 percent to $679 million.
Standard & Poor’s analyst Royal Shepard has a hold rating on T. Rowe Price shares. “We think the strong relative performance of TROW's mutual funds will continue to drive asset growth,” he writes. “However, we expect only modest improvement in operating margins, given recent market trends favoring fixed income funds (only about 29 percent of TROW's total assets).”
The company next reports earnings on Jan. 27.
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