May 2021 / POLICY INSIGHTS
Understanding T. Rowe Price’s Strategic Investing Approach
Discipline creates a strong investment process for our clients
- Fundamental analysis, backed by our global research platform, is the core of our investment approach and provides a strong foundation for stock selection.
- To uncover opportunities for our clients, we constantly analyze markets and the companies within them. We talk to the key players to seek the answers we need.
- Our investment professionals investigate how the companies we’re investing in are performing today to assess how we think they’ll perform in the future.
- We seek to go beyond the numbers and get ahead of change, which we believe leads to better decisions and prudent risk management.
Most sophisticated investors are aware of the pitfalls of overreacting to short‑term market trends—a habit that can lead to disappointing long‑term returns. Capital markets are volatile, and investors who rush to sell or buy assets based solely on their recent performance may find they’ve taken on more risk than they expected.
The same principle applies to actively managed investments—those that seek to add value for clients through security selection, sector rotation, factor weighting, or other techniques. Like the markets themselves, relative performance tends to be volatile. Evaluating managers based on quarterly or even annual results can be difficult and potentially misleading. Successful strategies often take time to bear fruit, and contrarian bets are rarely rewarded immediately. Attractive growth opportunities may be prospective, not immediate, and undervalued companies may remain undervalued for months or years.
The academic literature is clear about the obvious problem that the “average” active manager faces in seeking to generate excess returns, especially net of fees and other costs. Over time, the positive and negative excess returns of active managers as a group have tended to balance out, leaving fees and other costs as a net drag on relative performance.
However, while we recognize the virtues of passive index strategies—and employ indexed components in some of our asset allocation strategies—we do believe strongly that a skilled strategic investing approach has the potential to add value for clients over longer‑term time horizons.
Evaluating manager performance requires investors and/or their financial advisors to distinguish between the signal and the noise—that is, to see past the many factors that may generate volatility in relative returns and paint a distorted short‑term picture (either positive or negative) of manager skill.
This material is being furnished for general informational and/or marketing purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, nor is it intended to serve as the primary basis for an investment decision. Prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.
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Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources' accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on the material and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.
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