Analysis Demonstrates Historical Long-Term Performance Strength Compared to Passive and Active Peers
BALTIMORE, November 28, 2022 – T. Rowe Price (NASDAQ-GS: TROW), a global investment management firm and a leader in retirement services, has released new research that shows over the last 20 years ended September 30, 2022, its actively managed funds have consistently outperformed passive peer funds – net of fees.
Looking at rolling monthly 10-year periods, findings show T. Rowe Price funds beat comparable passive fund averages 73% of the time(1), more often than the aggregate of all actively managed funds—excluding T. Rowe Price—comprising the Morningstar Direct database, which did so 47% of the time(2) . This also compares favorably to the five largest active management firms by assets under management in the mutual fund space, whose funds, when aggregated together, have outperformed the same passive averages 62% of the time(3).
The study focuses on the individual performance of 124 actively managed T. Rowe Price mutual funds and exchange-traded funds (ETFs), including equity, fixed income, and asset allocation funds, compared to average passive returns in the corresponding Morningstar category. Although T. Rowe Price funds are the focus, the calculation of passive averages allows comparison for more than 10,700 active funds to the passive averages representing 3,109 passive funds over 1,136,941 rolling one-year time periods. The T. Rowe Price funds reviewed represent 71% of the firm’s mutual fund assets under management and 38% of the firm’s total assets under management as of September 30, 2022. The equity category consisted of U.S. equity, international equity, and sector equity funds. The fixed income category included both U.S. and international bond funds.
The full study methodology can be found here.
T. Rowe Price fund performance was analyzed using two metrics: the frequency of outperformance, or active success rate, and the level of outperformance, or the average annualized excess returns over and above the determined passive average return. The passive average determining these metrics was calculated using the equally weighted average of the returns posted by the oldest share class of the passive funds in the Morningstar Direct category for each T. Rowe Price fund in the study.
RESULTS
The annualized excess returns above passive averages achieved by all T. Rowe Price equity funds across rolling 10‑year periods were, on average, 1.06% after fees and expenses. The active success rate for equity overall was 76%. When broken down by region and sector, average excess annualized returns were 0.78% for U.S. equity(4), 0.64% for international equity(5), and 2.59% for sector equity(6). This trend of outperformance, after fees and expenses, also extended to the 1-, 3-, and 5-year periods.
T. Rowe Price fixed income funds also added value versus passive funds in comparable Morningstar Direct categories. Over 10-year rolling periods, the frequency with which T. Rowe Price fixed income funds outperformed was 59%, and the rate at which the funds exhibited less volatility than their passive peers was 75%. Volatility metrics for passive comparisons were calculated using the average standard deviation over the given period of the passive competitors in the category. The average annualized excess return, net of fees and expenses, was 0.17%. Fixed income funds averaged 0.49% less volatility, annualized, than comparable passive peers(7).
More than 90% of actively managed T. Rowe Price funds have an expense ratio below the average of comparable active funds in their Morningstar category(8).
Additional details on the T. Rowe Price equity fund analysis, including the funds’ average annual total returns, can be found here and fixed income fund information can be found here.
In a previous study of its target date mutual funds, T. Rowe Price found that its Retirement Funds series outperformed passive in 100% of rolling monthly 10-year periods since inception and had annualized excess returns of 1.39%(9). That study can be found here.
As another indication of its active management capabilities, T. Rowe Price was named by Refinitiv Lipper in March of this year as the 2022 Best Overall Large U.S. Fund Management Group. At the same time, it received 24 awards for individual fund performance from Lipper Refinitiv. More information is here.
QUOTES
Eric Veiel, CFA, Head of Global Equity and Chief Investment Officer
“At T. Rowe Price, we strongly believe in the effectiveness of skilled active management. While passive funds have a place in some client portfolios, active management that is executed properly and consistently can deliver more attractive returns over the long term. Low expense ratios are important, but in the final analysis, nothing is more important than outperformance after fees and expenses. This study demonstrates our track record of delivering for clients. Our portfolio managers have deep experience—an average of 22 years in the industry and 17 years with T. Rowe Price—and leverage a vast platform of global research analysts. The collaboration and collective commitment of all our investment professionals to our clients is second to none. This long-term success is a function of their talent and the culture that has characterized the company for more than 85 years.”
Andy McCormick, Head of Global Fixed Income and Chief Investment Officer
“We were pleased to see the study results reaffirm the benefits of active management in T. Rowe Price’s fixed income offerings. The balance between generating active returns and mitigating downside volatility is a key focus of our portfolio construction and risk management disciplines. Our global research platform has enabled differentiation from passive fixed income offerings, which, for a variety of reasons, often struggle to mirror the bond indices they track and could make them more volatile than actively managed bond funds. Fixed income allocations continue to be an important source of income and diversification for our clients, and we remain committed to helping them meet their investment objectives.”
Sébastien Page, CFA, Head of Global Multi-Asset and Chief Investment Officer
“The success of T. Rowe Price’s target date portfolios comes from multiple and diversified investment capabilities. Our goal in the multi-asset division is to deliver all of our firm’s capabilities in one professionally managed solution. With strong, actively managed funds as a foundation, we believe that we can meaningfully enhance retirement outcomes for our clients through glide path design, strategic portfolio construction that delivers structural advantages and efficient diversification, and timely tactical asset allocation decisions. The study only reinforces this belief.”
T. ROWE PRICE EQUITY FUNDS FACTS AND FIGURES
10-year periods, rolled monthly, from October 1, 2002, to September 30, 2022
The average amount of better returns over passive averages (Average Annualized Excess Returns) was:
+1.06% for all equity funds (49 funds)
+.078% for U.S. equity funds (24 funds)
+0.64% for international equity funds (17 funds)
+2.59% for sector equity funds (8 funds)
Frequency of better returns over passive averages (Active Success Rate) was:
76% for all equity funds (of 5,023 rolling periods)
73% for U.S. equity funds (of 2,681 rolling periods)
77% for international equity funds (of 1,447 rolling periods)
81% sector equity funds (of 895 rolling periods)
T. ROWE PRICE FIXED INCOME FUNDS FACTS AND FIGURES
10-year periods, rolled monthly, from October 1, 2002, to September 30, 2022
The average amount of better returns over passive averages (Average Annualized Excess Returns) was
+0.17% (25 funds)
The frequency of better returns over passive averages (Active Success Rate) was
59% (1,665 rolling periods)
The average amount of lower volatility versus passive averages (Average Annualized Volatility Differential) was
-0.49% (25 funds)
The frequency of lower volatility versus passive averages (Active Success Rate) was
75% (1,665 rolling periods)
Past performance is no guarantee of future results. All investments are subject to risk, including the possible loss of principal. Results from other time periods may differ. Active investing may have higher costs than passive investing and may underperform the broad market or passive peers with similar objectives. Passive investing may lag the performance of actively managed peers as holdings are not reallocated based on changes in market conditions or outlooks on specific securities. View the standardized returns for the funds used in this analysis
ABOUT T. ROWE PRICE
Founded in 1937, Baltimore-based T. Rowe Price (troweprice.com) is an independent global asset management company with $1.28 trillion in assets under management as of October 31, 2022, and a local presence in 16 countries. Known for long-term investment excellence, T. Rowe Price provides an array of mutual funds, subadvisory services, exchange-traded funds, and separate account management for individual and institutional investors, consultants, retirement plan sponsors, and financial intermediaries. The company also offers sophisticated investment planning and guidance tools. Its active, strategic investing approach is disciplined, risk-aware, and based on rigorous fundamental research. T. Rowe Price helps clients invest with confidence and can be found on Facebook, Instagram, LinkedIn, Twitter, and YouTube.
