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T. Rowe Price Blue Chip Growth hits on all the high points, earning a Morningstar Analyst Rating of Gold.
The combination of a skilled manager and analyst team is a potent mix. Larry Puglia launched the strategy in 1993, navigating well through multiple market cycles. T. Rowe’s well-regarded analyst bench, especially its perennially strong technology and communications teams, provide valuable insights that have fueled big gains, but Puglia’s oversight has helped maximize the effect. Indeed, a longtime bet on Amazon.com (AMZN), nearly a double-digit stake, has reaped big rewards.
However, it’s not a one-trick pony. The portfolio is spread across more than 100 stocks, allowing plenty of other ideas to bubble to the surface. While the biggest winners in recent years have come from picks in the technology sector, the portfolio is not entirely dependent on the sector: Indeed, its stake has dropped relative to the Russell 1000 Growth Index since late 2018, which helped it hold up a bit better in the fourth-quarter sell-off. Meanwhile, the portfolio has enough diversification and analytical support across industries to provide some shelter when the high-octane growth companies that have fueled the market inevitably retreat.
The strategy has stayed a notch above the benchmark despite a tough environment for active equity managers and its growing asset base. Results during Puglia’s full tenure, as well as shorter periods, surpass the benchmark and most competitors, and it has maintained an edge on a risk-adjusted basis.
Size hasn’t slowed it down. At more than $100 billion in assets, Puglia hasn’t shifted the approach or portfolio composition, and he has stayed focused on liquid large-cap stocks. Plus, T. Rowe has a good record of closing funds when the manager requests it. Reasonable fees help it stay competitive in an increasingly cost-conscious asset class, and T. Rowe’s sound succession planning should set it up for success when it comes time for Puglia’s retirement.
Performance | Positive | by Katie Rushkewicz Reichart, CFA Aug 1, 2019
This strategy has stayed consistent under manager Larry Puglia, earning a Positive Performance rating. From his 1993 start date through June 2019, the fund’s five-year rolling returns never landed in the large-growth category’s bottom quartile and beat the Russell 1000 Growth Index 72% of the time. Overall, the fund’s 11.2% annualized gain on his watch well exceeds the index’s 9.6% and the category’s 8.6%, and it maintains an edge on a risk-adjusted basis.
The fund has posted superb returns in the bull market dating back to 2009, with top-quintile or better showings in 2009, 2012, 2013, 2015, 2017, and 2018. It has lost less than peers and the benchmark in down markets throughout Puglia’s entire tenure. However, it has been a bit more volatile than the benchmark in recent years versus earlier in Puglia’s tenure, capturing 106% of the benchmark’s losses in down markets during the past decade. The fund had an uncharacteristically poor showing in 2008. It underperformed in the market sell-off from July 2015 to February 2016 because of its above-average stake in biotech stocks and some tech picks. But it held its own against the benchmark during 2018’s fourth-quarter market pullback. It was up 20.9% in 2019’s first half, results that looked about average in a robust market environment, bolstered by technology picks such as ServiceNow (NOW) .
Price | Positive | by Katie Rushkewicz Reichart, CFA Aug 1, 2019
This fund earns a Positive Price rating. The no-load share class holds the bulk of assets and is priced below average relative to similarly sold funds, as is the Institutional share class. The Advisor and Retirement shares are priced above average and average, respectively, but hold just 6% of the fund’s assets. Brokerage commissions as a percentage of net assets are below the category norm.
Process | Positive | by Katie Rushkewicz Reichart, CFA Aug 1, 2019
The strategy earns a Positive Process rating because manager Larry Puglia has consistently followed an approach that’s effectively combined T. Rowe Price’s strong analytical resources and his own insights. Puglia focuses on firms with sustainable earnings, high returns on invested capital, and free cash flow growth. He avoids overly leveraged companies, reflected in a debt/capital ratio that’s routinely below the Russell 1000 Growth Index’s. The quality of a firm’s management team matters, too, particularly when it comes to capital allocation. The strategy often has a high percentage of assets in stocks with wide or narrow Morningstar Economic Moat Ratings.
However, the strategy isn’t simply a compilation of steady blue chips. Rather, it includes plenty of fast growers, including a few non-U.S. names. The strategy’s long-term earnings growth is regularly above the benchmark’s, but it has also traded at higher price multiples at times. At more than $100 billion in assets, size could present a challenge as T. Rowe Price’s other growth managers traffic in many of the same names. However, the portfolio remains focused on highly liquid large-cap stocks where trading isn’t as challenging; it has never overly relied on less-liquid small- and mid-cap names to gain an advantage over the competition. Ultimately, the portfolio is distinct enough to give it an edge over the benchmark and peers.
Larry Puglia has consistently invested in 120-140 stocks throughout his 25-year tenure, even as the strategy has grown. Concentration in the top 10 holdings was near the high end of its historical range at 43% as of June 2019. Most positions are under 5% of assets, but Amazon.com (AMZN) stood at nearly 10% recently, almost double the benchmark weighting, to reflect Puglia’s long-term conviction. The strategy had a similarly sized position in Apple (AAPL) a few years ago when that name was a huge index constituent and Puglia wanted to keep positioning distinct from the benchmark (recently it owned just 0.20% even as it has remained a top benchmark holding).
The strategy has kept volatility in check by diversifying its picks within sectors and balancing economically sensitive ones with more-defensive plays. It has been light on consumer staples in recent years, instead holding more than half of its assets in consumer discretionary, technology, and communication services stocks. Out-of-benchmark China positions, including Alibaba (BABA) and Tencent (TCTZF) , have helped it stand out versus large-growth Morningstar Category peers. But it is willing to venture beyond traditional growth haunts, as reflected in its above-average financials stake and positions such as TD Ameritrade (AMTD). It also recently dipped a toe into energy (0.44% of assets). Puglia has reined in the strategy’s biotech exposure, which at 2% of assets was just a sixth of its 2014 stake.
People | Positive | by Katie Rushkewicz Reichart, CFA Aug 1, 2019
Manager Larry Puglia joined T. Rowe Price in 1990 as a financial-services analyst. He has managed here since its mid-1993 inception, making him one of the category’s longest-tenured managers. He was nominated for Morningstar Domestic-Stock Fund Manager of the Year in 2013 and 2017. He invests more than $1 million here. Puglia’s experience and the firm’s strong analytical resources earn a Positive People rating.
Puglia relies on T. Rowe’s well-regarded analyst team, totaling more than 100 globally. That team is a huge strength at T. Rowe, particularly in technology and communications, which factor in greatly here. While the analyst team has seen some changes in recent years, including in healthcare and consumer discretionary, the firm has managed through such changes well and maintains a stable investment culture. Puglia’s experience helps him compensate for any holes in coverage that result from changes on the analyst team. During his decades-long tenure here, he has successfully used various iterations of the analyst team while maintaining solid performance, and he has skillfully made portfolio changes that occasionally deviate from the analysts’ stock ratings.
Puglia is in his late 50s. In the next few years, his successor will be named, likely working alongside him for up to a year before he retires. T. Rowe’s strong track record handling manager transitions provides confidence that this one will be handled well when the time comes.
Parent | Positive | by Katie Rushkewicz Reichart, CFA Oct 1, 2018
T. Rowe Price remains best-in-class, earning a Positive Parent rating. The firm’s success is rooted in its fundamental approach to active management and deep analyst bench. Investors benefit from managers’ generally long tenures at the firm, well-planned manager transitions, reasonable costs, and attention to capacity. Many top executives, including CEO Bill Stromberg, rose from the analyst ranks, which helps keep a focus on investors at the forefront, even as the firm expands its distribution footprint outside the United States and bolsters its technology resources. The investment side has received resources, too. The multi-asset team has grown in size, reflecting its importance to the firm’s future beyond the esteemed target-date lineup. Despite headwinds facing active managers, T. Rowe remains a powerhouse within U.S. and international equities. Fixed income is an area to watch. Several long-tenured managers have recently retired or will do so soon. Sound succession planning has smoothed the transitions, but the firm needs to ensure the bench remains deep. While high-yield and municipal bonds remain bright spots, the fixed-income team has not yet shown sustainable success in inching beyond its conservative bottom-up approach at some core strategies. Plus, the firm’s foray into alternatives is unproven. Overall, though, T. Rowe Price retains the sensible and investor-focused culture that has long driven its success.