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All Contents © 2020The Kiplinger Washington Editors
By Nellie S. Huang, Senior Associate Editor
| October 9, 2019
A dozen T. Rowe Price funds appear among the top 100 401(k) funds this year, according to data firm BrightScope. Interestingly, all are funds that focus on growth stocks, and all are standouts in their categories.
That shouldn’t surprise anyone. Thomas Rowe Price, Jr., the late founder of T. Rowe Price, often is called the father of growth investing. His investing process, which centers on a deep dive into a company’s nitty-gritty details, still thrives at the Baltimore firm. And it’s clearly popular among retirement savers.
We analyzed each one as part of our annual review of the most popular funds for 401(k) retirement savings accounts. Seven of the 12 T. Rowe Price funds are target-date funds, and they are analyzed as a single unit.
Here are some of the best T. Rowe Price funds for your 401(k), as well as one popular option that doesn’t make the cut. We rate each one either Buy, Sell or Hold, and discuss why these funds stand out from the crowd.
Returns and data are as of Oct. 8 and are gathered for the share class with the lowest required minimum initial investment – typically the investor share class or A share class – unless otherwise noted. The share class available in your 401(k) plan may be different.
Expense ratio: 0.70%
One-year return: 3.5%
Three-year annualized return: 17.2%
Five-year annualized return: 13.6%
10-year annualized return: 15.4%
Rank among the top 401(k) funds: #32
Best for: Aggressive investors with long time horizons.
A handful of actively managed funds have been longtime stock-market outperformers. T. Rowe Price Blue Chip Growth – a member of the Kiplinger 25, our favorite no-load funds – is one of them.
Manager Larry Puglia has been with the fund since it opened in 1993. Puglia fills his portfolio with established companies that are run by smart executives, boast strong free cash flow (cash profits after capital outlays) and exhibit above-average earnings growth. A sizable chunk of the fund’s $63 billion in assets sits in tech, health-care and consumer-oriented firms. TRBCX holds nearly 130 stocks and has a low relative turnover of 27%, half that of its peers: funds that invest in large, growing companies.
The wind has been blowing Puglia’s way lately. The fund’s large-cap growth-oriented mandate falls in what has been the sweet spot of the current bull market. And Blue Chip Growth has done better than the broad market, with a 15.4% annualized 10-year return, which beats the 12.7% return in the S&P 500.
TRBCX has held up well when growth stocks have stumbled in the past, too. For instance, during the broad U.S. stock market’s so-called lost decade, Blue Chip Growth stayed in step with the S&P 500, returning an annualized 1.4% between 2001 and 2010. And during the late 2018 swoon, it lagged the 19.4% loss in the S&P 500, but only by 0.7 percentage points.
This fund is a keeper.
Expense ratio: 0.66%
One-year return: 3.1%
Three-year annualized return: 15.4%
Five-year annualized return: 12.5%
10-year annualized return: 14.6%
Rank among the top 401(k) funds: #47
Best for: Investors in search of growth and a dash of stability.
T. Rowe Price Growth Stock is a solid large-capitalization growth fund. PRGFX, which has $53 billion in assets, looks a lot like its bigger brother, Blue Chip Growth. The two funds hold roughly 30 stocks in common. At last report, Amazon.com (AMZN), Google parent Alphabet (GOOGL) and Microsoft (MSFT) were among both funds’ biggest holdings.
But Growth Stock has its own personality.
Joe Fath took over the fund in 2014. Since then, the fund has outpaced its large-growth fund peers and the S&P 500 with an 11.5% annualized return. Fath likes to keep the portfolio to 70 and 100 stocks (the fund currently holds shares in 91 companies), and lately, he favors technology, consumer-oriented firms and communications services companies. His mandate is to focus on companies with strong cash flow and above-average earnings growth, but he also favors firms that can withstand an economic slowdown or downturn because of strong earnings momentum, or a solid hold on a lucrative niche in its industry, among other things.
Expense ratio: 0.56%
One-year return: 2.9%
Three-year annualized return: 18.7%
Five-year annualized return: 14.3%
10-year annualized return: 15.6%
Rank among the top 401(k) funds: #59
Best for: Investors with long time horizons.
Many investors haven’t heard of T. Rowe Price Institutional Large Cap Growth, mainly because it’s open only to investors with deep pockets (the fund has a $1 million initial investment requirement). But it’s offered in many 401(k) plans for no minimum.
TRLGX looks like a slimmed-down version of the firm’s more popular large-company growth funds, Blue Chip Growth and Growth Stock. The three portfolios hold many of the same stocks, including Amazon.com, Microsoft and Facebook (FB). But Institutional Large Cap Growth holds only 74 stocks, compared with 128 in Blue Chip Growth and 91 in Growth Stock. And with $15 billion in assets, Institutional Large Cap Growth is a fraction the size of Blue Chip Growth and Growth Stock.
Manager Taymour Tamaddon takes an active role. He beefed up his cash position in the second half of 2018, for instance, which helped cushion the fund during the nearly bear-like correction of the S&P 500 in the fourth quarter.
One concern is that he’s relatively new to the fund – he took over at the start of 2017. But he’s performed swimmingly so far. Since early 2017, the fund has returned 19.7% annualized, far ahead of the 11.9% annualized return in the S&P 500 and the 15.0% return in the typical large-company growth fund over the same period.
Expense ratio: 0.75%
One-year return: 6.5%
Three-year annualized return: 14.0%
Five-year annualized return: 12.3%
10-year annualized return: 14.4%
Rank among the top 401(k) funds: #49
Best for: Exposure to midsize companies.
Over the long haul, mid-cap stocks have historically generated stronger returns than shares in large and small companies. But to some investors, they’re the middle child of the investing world – not as established as the large caps, and not as much growth potential as the small caps.
It’s hard to overlook a fund like T. Rowe Price Mid-Cap Growth, though. Over the past one-, three-, five- and 10-year periods, RPMGX has outpaced the S&P 500, the S&P MidCap 400 and the S&P SmallCap 600 indexes on an annualized-return basis, in most cases with less volatility, too.
Manager Brian Berghuis has run Mid-Cap Growth since it launched in mid-1992. The fund has been closed to new investors since 2010 – a factor that may have been a plus because Berghuis did not have to deal with large inflows of cash from investors who were chasing his dazzling returns. That said, you still can invest in RPMGX if it’s available in your 401(k) plan.
Berghuis fills the portfolio with 140-odd stocks in companies that fall on the bigger side of midsize; holdings in the fund have an average market value of $14 billion. He’s looking for fast-growing firms with low debt that trade at a reasonable price. At last report, two medical-device makers – Teleflex (TFX) and Cooper Cos. (COO) – and diversified manufacturer Ball Corp. (BLL) were the fund’s top holdings.
Expense ratio: 0.77%
One-year return: 8.8%
Three-year annualized return: 19.4%
Five-year annualized return: 15.5%
10-year annualized return: 18.1%
Rank among the top 401(k) funds: #78
Best for: Small-company stock exposure.
T. Rowe Price New Horizons, a standout small-company stock fund, suffered a blow in March 2019. Star manager Henry Ellenbogen left the fund.
Enter Joshua Spencer, the new manager.
Spencer’s not a total unknown. He ran T. Rowe Price Global Technology (PRGTX) between 2012 and 2019, earning “exceptional returns,” Morningstar analyst Katie Rushkewicz Reichart says. But Global Technology is basically a large-company portfolio of tech stocks in the U.S. and abroad. New Horizons is a diversified basket of mostly U.S. “small, emerging growth” companies.
We have our fingers crossed, as PRNHX had been a stellar performer in the past. Existing shareholders should hold on. But new investors should enter with caution, understanding that the fund’s remarkable returns belong to another manager. Or wait a bit before jumping in to see how Spencer fares.
The fund is closed to new investors unless it’s available in your 401(k) plan.
Rank among the top 401(k) funds: Retirement 2020, #28; Retirement 2025, #33; Retirement 2030, #23; Retirement 2035, #38; Retirement 2040, #34; Retirement 2045, #55; Retirement 2050, #65
Best for: Retirement savers who want a professional to deal with their investment planning.
It’s little wonder that the T. Rowe Price Retirement target-date series is popular. They have performed spectacularly. Over the past five and 10 years, these target-date funds have posted annualized returns that rank among the top decile of their respective peer groups.
Part of their secret sauce is a hefty slug of stocks in each portfolio, which has been a boon throughout the current bull market. For example: T. Rowe Price Retirement 2035 (TRRJX), which is geared for workers who are roughly 50 years old today, holds about 79% of assets in stocks; its typical peer holds 74%. Even at retirement, the stock allocation may seem relatively aggressive: Retirement 2020 (TRRBX), for those retiring now or shortly, holds 56% of its assets in stocks; the typical 2020 target date fund holds 41% in stocks.
But that’s by design. The Price target-date fund management team, which includes Jerome Clark, Wyatt Lee and 30 experts, views the firm’s target-date series as a 60-year plan that stretches far into retirement. You save for 30 years, retire, and then you spend for 30 years. That’s why the Retirement target-date series keeps on shifting its blend of stocks and bonds for three decades past its target year. Viewed within that framework, a 56% allocation to stocks in the year you retire, with 30 years to still to go, doesn’t seem overly aggressive.
“We want to make your money last,” Lee says.