Fund Focus

Growth Goals, Income Ballast

December 08 2023

Combining contrarian stock selection and high-quality fixed income may offer benefits

Fund summary

  • The fund seeks to generate attractive income and long‑term capital appreciation while limiting losses in a market downturn. This strategy is designed for investors who may value an emphasis on income generation and capital preservation—such as investors who are approaching or are in retirement—without sacrificing the potential for long‑term capital appreciation.
  • We employ fundamental research and active, bottom‑up security selection to construct a portfolio consisting of higher‑quality companies and credit. We focus on identifying undervalued areas of the market in order to exploit inefficiencies and capture excess returns.
  • The portfolio invests across a range of fixed income assets that typically comprise the majority of holdings. The portfolio also invests in equities, convertible and preferred securities, and derivatives. The fund employs a flexible approach to portfolio management that allows us to dynamically allocate assets across the investment universe in the pursuit of strong risk‑adjusted returns. We identify investment opportunities based on our research regarding underlying corporate fundamentals, market performance, and relevant macroeconomic considerations.
  • Co-portfolio Manager David Giroux is an experienced fund manager with a long history of managing portfolios invested in U.S. large‑cap equities and fixed income securities.
  • Co‑portfolio Manager Farris Shuggi is the head of Quantitative Equity at T. Rowe Price Investment Management (TRPIM).
  • The portfolio seeks outperformance primarily through security selection.

T. Rowe Price Capital Appreciation and Income Fund

CUSIP: 77954M402  

Ticker: PRCFX

Established and consistent investment philosophy

We believe that our commitment to fundamental research and our tested investment process allow us to identify the best opportunities across asset classes to meet our objectives. The strategy generally uses a contrarian approach with a quality bias, and it seeks companies whose stocks and other securities appear to be undervalued or out of favor with investors. Our process favors companies that allocate capital well, offer attractive valuations, and have sound corporate fundamentals while avoiding companies that face secular challenges or offer poor risk‑adjusted returns. Our objective is to provide our clients with superior risk‑adjusted returns while also limiting downside risk.

Tenured portfolio management

Co-portfolio Manager David Giroux, CFA, has over two decades of investment experience. Mr. Giroux has been the lead manager of a portfolio that invests primarily in U.S. large‑cap equities and fixed income securities since 2006. Mr. Giroux also serves as the chief investment officer for TRPIM.

Co-portfolio Manager Farris Shuggi, CFA, is the head of Quantitative Equity at TRPIM. Mr. Shuggi is a member of the TRPIM Environmental, Social, and Governance (ESG) Committee. He is also a member of the Capital Appreciation Fund and the Small‑Cap Value Fund Investment Advisory Committees. Mr. Shuggi joined T. Rowe Price in 2008 and has worked closely with Mr. Giroux for over a decade.

Experienced research resources

TRPIM has a deeply held commitment to in‑house research. We aim to bring our clients better insights, which can lead to stronger long‑term investment results. In our view, the quality and breadth of our team of equity and fixed income research professionals provide a critical information edge that supports well‑informed investment choices. The portfolio manager team is also supported by nine dedicated investment professionals focused on equity, fixed income, quantitative, and investment research, in addition to the broader team of TRPIM analysts.

Disciplined investment approach

Our approach combines fundamental financial analysis and qualitative investigation of existing and potential investments to provide a consistent framework for evaluating companies and securities. We build the portfolio one security at a time, focusing on individual stock and credit selection as our foundation. This approach enables us to focus on long‑term capital appreciation and strong risk management. Additionally, our flexible approach allows us to invest across asset classes in pursuit of our objectives.

We believe the distinguishing attributes of the Capital Appreciation and Income Fund include:

  • Established and consistent investment philosophy and process. Our portfolio management team has decades of experience managing portfolios with a focus on U.S. large‑cap equities, fixed income, and dynamic asset allocation. Through our bottom‑up analysis and fundamental research, we believe we can identify undervalued names that can offer strong risk‑adjusted returns. Our process integrates fundamental and quantitative research to enhance our best thinking and manage risk. We also have the flexibility to invest where we see opportunities, so our asset class weights are largely a byproduct of where we are finding attractive risk‑adjusted returns. Our investment philosophy and process have enabled us to navigate a range of market environments and deliver on our investment objectives.
  • Current income, long‑term appreciation. The fund seeks to generate attractive income and long‑term capital appreciation while limiting losses in a market downturn. We dynamically allocate our assets across yield-generating opportunities in fixed income, covered calls, convertible bonds, and preferred securities. This strategy is designed for investors who may value an emphasis on income generation and capital preservation—such as investors who are approaching or are in retirement—without sacrificing the potential for long-term capital appreciation.
  • Emphasis on capital allocation. We focus on how productively a company’s management team puts capital to work, whether by reinvesting in its business, buying back shares, or paying dividends. These decisions can have a major impact on a company’s ability to sustain and grow its business.
  • Long‑term investment orientation. We are patient investors who emphasize a long‑term business strategy as opposed to near‑term operating results. This outlook allows us to contextualize short‑term concerns and remain focused on the long‑term value of a company’s earnings and underlying fundamentals. This typically results in relatively low portfolio turnover, which can allow for compounding earnings growth and the potential for reduced trading costs.
  • Contrarian approach with a quality bias. This fund employs a contrarian approach that allows us to identify high‑quality companies that we believe have been mispriced due to near‑term challenges or overlooked opportunities. We seek to purchase companies with above‑average businesses but without long‑term secular risks. This focus on factors that drive long‑term performance is central to our investment philosophy.
  • Breadth and depth of research capabilities. TRPIM has a deep commitment to in‑house research, and we continually develop our research capabilities. The quality and breadth of our research effort provides a critical information edge that supports well‑informed investment decisions. Our ESG specialist teams provide investment research on ESG issues at the company level and on thematic topics. Our Responsible Investing Indicator Model covers approximately 13,000 securities and pulls from datasets that are not in the wheelhouse of traditional financial analysis.

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Important Information

Call 1‑800‑225‑5132 to request a prospectus or summary prospectus; each includes investment objectives, risks, fees, expenses, and other information you should read and consider carefully before investing.

This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.

This information is not intended to reflect a current or past recommendation concerning investments, investment strategies, or account types, advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Please consider your own circumstances before making an investment decision.

Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. All charts and tables are shown for illustrative purposes only.

T. Rowe Price Investment Services, Inc.

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202312-3257067

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