This $9m (£6m) portfolio of US large-cap stocks was launched in 2009, with the aim of increasing the value of its shares over the long term.
Manager Jeff Rottinghaus notes: “I work closely with our equity research analysts to build a diversified portfolio of roughly 50 high-quality, uniquely positioned companies with improving fundamentals and strong management teams.”
The manager adds: “We’ve historically added the majority of value from our bottom-up, stock-selection decisions. We don’t try to time the markets or make top-down calls on which sector is going to lead or lag the broader market. Instead, we hope to identify company-specific investment opportunities where the market is underestimating the durability of growth or the improvement potential within individual firms.”
Mr Rottinghaus acknowledges the process still requires a “strong grasp” of secular issues. He points to the financial crisis as an example, when the most successful investors had an understanding of the regulatory landscape facing banks and insurers in the aftermath of 2009.
He says: “While certainly less dramatic, we’re seeing similarities today within the healthcare sector. The industry has experienced profound changes in the past several years, and we have to be on top of those secular changes and have an understanding of the headwinds and tailwinds the industry will wrestle with in the coming years.”
The manager has recently added to some of the fund’s holdings within banking and insurance as he expects increased profitability in the next few years from companies in this space, aided by a higher interest rate environment. He has also added to positions within “certain pockets” of the industrials sector, where companies now have more stable earnings streams.
Mr Rottinghaus points out: “We’ve taken advantage of the recent pullback in utilities, adding to a select group of attractively valued, higher-quality businesses that are exposed to geographic regions with favourable demographic growth profiles, which we expect to deliver better earnings growth versus their peers over the next several years.”
The fund is positioned towards the riskier end of the risk-reward scale, at level five out of a possible seven, while the clean fee Q-share class has ongoing charges of 0.82 per cent.
While still small in size, the portfolio has produced strong returns versus its peer group, the Investment Association North America sector. The vehicle has delivered an impressive 100.8 per cent in the five years to November 25, compared with the sector’s 80.2 per cent average return, data from FE Analytics shows. In the past 12 months the fund has delivered 12.9 per cent, up on the 5.3 per cent average return generated by the sector. Mr Rottinghaus says holdings including Amazon, Facebook and Google parent Alphabet have boosted performance after delivering results that surpassed most investors’ expectations earlier this year.
He adds: “We’ve also been rewarded for holding positions in several stocks where our analysts saw underappreciated potential for improvement within individual firms, such as General Electric and Lowe’s Companies. We did the necessary work to understand that the companies had options available to improve their competitive positioning, and then gave them the time needed to implement the corrective action.”
However, the manager admits the energy sector has been a more difficult place to invest. “We’ve been focused on owning companies with strong balance sheets and high-quality assets, such as Apache Corporation and Pioneer Natural Resources, but our holdings within the sector have declined with most others in the space,” he notes.
The combination of a sharp fall in energy prices and the strengthening US dollar will mean more modest earnings and full-year revenue for this year against 2014. Mr Rottinghaus says: “Looking forward to 2016 we expect to see a continuation of somewhat subdued market returns, combined with higher levels of market volatility compared with what we’ve experienced in the past several years.”
EXPERT VIEW
Jake Moeller, head of Lipper UK and Ireland research
T Rowe Price may not sit on the tip of investors’ tongues, but it is making a concerted push into the European market. It has been quietly going about collecting a number of recent fund awards with a number of well-run offerings. This fund is one of them, ranking well across three and five years on most risk-adjusted return metrics. Jeff Rottinghaus’s largely agnostic-style process hasn’t shot the lights out in the past three years. But longer term positions in industrials and IT have generated considerable alpha and patient investors have been well rewarded in 2015. A committed emphasis on risk means momentum markets may not be the most favourable for this fund.
