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October 2023 / U.S. EQUITIES

Can an Active All-Cap Approach Consistently Add Value Over Time?

And without a significant increase in risk?

Key Insights

  • A criticism sometimes leveled at active management is that many strategies struggle to consistently deliver alpha across changing market conditions.
  • We consider whether active stock picking, with the flexibility to invest across the full market cap spectrum, can consistently add value over time.
  • Importantly, is it possible to deliver on this ambition of consistent added value without also taking on significant additional risk?

One of the truisms of investing is that financial markets are constantly changing, continuously impacted by new information and rapidly evolving dynamics. Indeed, one of the criticisms sometimes leveled at active management is that many strategies struggle to consistently deliver alpha across various market environments. With this in mind, we consider what it means to be a high‑conviction active manager and whether fundamental stock selection across the market capitalization spectrum can consistently deliver alpha generation across varying market and economic conditions.

All‑Cap Remit Provides an Expansive Opportunity Set

Following a bull market run that lasted more than a decade, the U.S. equity market landscape has been much more volatile and uncertain over the past two years. This is where an actively managed all‑cap strategy can be beneficial, providing an expansive opportunity set in which to find quality, well‑managed businesses capable of generating alpha.

Successful navigation of different market environments is exactly what an all‑cap strategy is designed to do, providing the flexibility to invest in companies of any size beyond the well‑known and heavily invested large companies, and across the style spectrum, from high‑growth to deep‑value names. The ability to quickly adapt to new economic cycles and changing market dynamics is central to potentially delivering more consistent performance outcomes over time for investors.

Delivering Alpha Through Various Market Conditions

The T. Rowe Price US All‑Cap Opportunities Equity Strategy aims to deliver on this ambition by generating alpha through various market conditions. The portfolio manager fully utilizes this all‑cap flexibility by applying a unique stock‑picking framework that centers on four key “pillars”: business quality, earnings expectations relative to the market, whether company fundamentals are improving or declining, and valuation. Each of these pillars is multifaceted, and rarely do all point in the same direction; rather, they are intended as a flexible framework to ensure that a wide variety of ideas are considered.

The framework is key in filtering the potential universe, and, importantly, it also helps to focus selection decisions on the fundamental truth that stock prices are ultimately a function of supply and demand over the short to medium term. When there are more incremental reasons for investors to want to buy a stock (i.e., it is in higher demand) and fewer incremental reasons to sell (i.e., supply it back to the market), then prices must find a higher equilibrium point.

Consistent good performance outcomes that the strategy strives for ultimately stem from the fact that the supply and demand framework can be applied in any market environment and helps to avoid becoming overexposed to either growth or value styles or any specific sectors. By keeping style/sector bets to a minimum to avoid potential blowups, we help ensure that active stock selection utilizing the full market cap spectrum remains the principal driver of performance over time.

Stock Selection Drove Portfolio Outcomes

(Fig. 1) T. Rowe Price US All‑Cap Opportunities Equity Representative Portfolio vs. Russell 3000 Index attribution analysis

Bar chart showing the attribution of the T. Rowe Price US All-Cap Opportunities Equity Representative Portfolio versus the comparative Russell 3000 Index over the one year period ended September 30, 2023.

Past performance is not a reliable indicator of future performance.
As of September 30, 2023. For the one year period ending September 30, 2023.
Attribution analysis represents the total portfolio as calculated by the FactSet attribution model and is inclusive of other assets. Non‑equity positions are excluded from the structure shown. Allocation and selection effects provide insight into the underlying securities and which factors impacted the portfolio’s excess return relative to the benchmark shown. Performance, gross of fees, for each security is obtained in the local currency and, if necessary, is converted to U.S. Dollars using an exchange rate determined by an independent third party. Figures are shown with gross dividends reinvested.
T. Rowe Price uses the current MSCI/S&P Global Industry Classification Standard (GICS) for sector and industry reporting. Please see Additional Disclosures page for information about this Global Industry Classification Standard (GICS) information.
Sources: Financial data and analytics provider FactSet. Copyright 2023 FactSet. All Rights Reserved. MSCI/S&P GICS Sectors; Analysis by T. Rowe Price.
The representative portfolio is an account in the composite we believe most closely reflects current portfolio management style for the strategy. Performance is not a consideration in the selection of the representative portfolio. The characteristics of the representative portfolio shown may differ from those of other accounts in the strategy. Please see the GIPS® Composite Report for additional information on the composite.
Source for Russell Index Data: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). Please see Additional Disclosures page for information about this FTSE Russell information.

If we look at the one year performance attribution for the representative portfolio in the US All‑Cap Opportunities Equity Strategy, (Fig. 1), the data indicates that:

  1. positive stock selection accounted for almost 100% of the portfolio’s benchmark outperformance;
  2. the portfolio was broadly exposed to 10 of 11 market sectors (zero or near zero exposure to utilities), with no significant active exposure in any one sector; and
  3. the portfolio exhibited positive stock selection in six out of 10 of those sectors and was broadly achieved across growth‑oriented sectors (information technology), cyclical sectors (industrials and business services, financials, and energy), and defensive sectors (health care). The story is largely the same over longer time periods.

Outperformance Need Not Mean an Increase in Risk

(Fig. 2) Risk vs. Return Analysis: T. Rowe Price US All‑Cap Opportunities Equity Composite vs. Linked Benchmark

Scatter plot chart comparing the annualized risk with return characteristics of the TRP US All-Cap Opportunities Equity Composite versus the comparative linked benchmark and the Russell 3000 Index for the five-year period ended September 30, 2023.

Past performance is not a reliable indicator of future performance.
See the [PERFORMANCE] section for the 1-, 5-,10‑year and since manager inception annualized net of fees returns for the Composite as of September 30, 2023.
Five years ended September 30, 2023. The 5‑year average annual return for the composite as of September 30, 2023, net of fees was 13.40%.
Figures are calculated using monthly data and are gross of fees. Returns would have been lower as a result of the deduction of applicable fees.
Effective 1 March 2021, the benchmark for the US All‑Cap Opportunities Equity Composite changed to the Russell 3000 Index. Prior to this change, the benchmark was the Russell 1000 Growth Index. Historical benchmark representations have not been restated.
Index returns shown with gross dividends reinvested.
Source for Russell Index Data: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). Please see Additional Disclosures page for information about this FTSE Russell information.

What makes this story more compelling still is the fact that the strategy has delivered healthy outperformance without taking on excessive risk relative to the benchmark. A common method of determining portfolio risk, for example, is standard deviation, which measures the volatility or spread of asset prices when compared with the index. It is reasonable to expect that, in order to outperform the index, it is necessary to add risk, resulting in higher standard deviation. However, as Fig. 2 shows, this needn’t be the case. Over the five‑year period ending September 30, 2023, the US All‑Cap Opportunities Equity Composite delivered 215 basis points of average annual outperformance, and with only marginally more risk, (0.01% standard deviation) compared with the linked benchmark.

The successful navigation of variable market environments in recent times is particularly encouraging, given that this is exactly what an all‑cap opportunities strategy aims to achieve: to provide dynamic exposure in order to generate alpha for investors, whatever the prevailing market environment.

Alpha Generation Without Excessive Risk

Risks to the near‑term U.S. market and economic outlook remain prominent, so we are comfortable maintaining a more cautious stance, particularly as the current risk/reward profile of the U.S. equity market provides little incentive to add risk at this point. We believe strong stock selection will be key to generating outperformance in the near term as company valuation and fundamental strengths come sharply back into focus. This backdrop plays to the strengths of active stock picking. Moreover, the large U.S. equity market means that investors with an all‑cap remit can potentially benefit from tapping a broad range of opportunities throughout the market capitalization spectrum and across investment styles, sectors, and industries. Ultimately, consistent alpha generation without taking on excessive short‑term relative risk is possible. However, we believe it requires high‑conviction stock picking, with the flexibility to invest across the market spectrum, and a fundamental understanding of intrinsic company value.

Additional Disclosures

London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2023. FTSE Russell is a trading name of certain of the LSE Group companies. “Russell®” is a trade mark(s) of the relevant LSE Group companies and is/are used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication. The LSE Group is not responsible for the formatting or configuration of this material or for any inaccuracy in T. Rowe Price’s presentation thereof.

The Global Industry Classification Standard (“GICS”) was developed by and is the exclusive property and a service mark of Morgan Stanley Capital International Inc, (“MSCI”) and Standard & Poor’s, a division of The McGraw‑Hill Companies, Inc. (“S&P”) and is licensed for use by T. Rowe Price. Neither MSCI, S&P nor any third party involved in making or compiling the GICS or any GICS classifications makes any express or implied warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability and fitness for a particular purpose with respect to any or such standard or classification, without limiting any or the foregoing, in no event shall MSCI, S&P, any of their affiliates or any third party involved in making or compiling the GICS or any GICS classifications have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.


Risks—the following risks are materially relevant to the portfolio:

Currency—Currency exchange rate movements could reduce investment gains or increase investment losses.

Issuer concentration—Issuer concentration risk may result in performance being more strongly affected by any business, industry, economic, financial or market conditions affecting those issuers in which the portfolio’s assets are concentrated.

Sector concentration—Sector concentration risk may result in performance being more strongly affected by any business, industry, economic, financial or market conditions affecting a particular sector in which the portfolio’s assets are concentrated.

Small and mid‑cap—Small and mid‑size company stock prices can be more volatile than stock prices of larger companies.

General Portfolio Risks

Capital risk—The value of your investment will vary and is not guaranteed. It will be affected by changes in the exchange rate between the base currency of the portfolio and the currency in which you subscribed, if different.

Equity—Equities can lose value rapidly for a variety of reasons and can remain at low prices indefinitely.

ESG and sustainability—ESG and Sustainability risk may result in a material negative impact on the value of an investment and performance of the portfolio.

Geographic concentration—Geographic concentration risk may result in performance being more strongly affected by any social, political, economic, environmental or market conditions affecting those countries or regions in which the portfolio’s assets are concentrated.

Hedging—Hedging measures involve costs and may work imperfectly, may not be feasible at times, or may fail completely.

Investment portfolio—Investing in portfolios involves certain risks an investor would not face if investing in markets directly.

Management—Management risk may result in potential conflicts of interest relating to the obligations of the investment manager.

Market—Market risk may subject the portfolio to experience losses caused by unexpected changes in a wide variety of factors.

Operational—Operational risk may cause losses as a result of incidents caused by people, systems, and/or processes.


This material is being furnished for general informational purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, and 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.

The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.

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.

The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request.  

It is not intended for distribution to retail investors in any jurisdiction.

Canada—Issued in Canada by T. Rowe Price (Canada), Inc. T. Rowe Price (Canada), Inc.’s investment management services are only available to Accredited Investors as defined under National Instrument 45-106. T. Rowe Price (Canada), Inc. enters into written delegation agreements with affiliates to provide investment management services.

© 2023 T. Rowe Price. All rights reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE, and the bighorn sheep design are, collectively and/or apart, trademarks or registered trademarks of T. Rowe Price Group, Inc.

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