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T. Rowe Price Targets Retiring Boomers

Posted: Jun 09, 2008 14:23 PM by Gregory S. Davis

Tickers in this Article: TROW, DHIL, BEN, IVZ

Baltimore, Maryland, is well know for its crab cakes, tough streets, multiple sports franchises and several of the top money management houses in the world including T. Rowe Price (Nasdaq:TROW).

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As more boomers look for easy ways to plan for their retirement, T. Rowe Price is well positioned with its target-date retirement funds, also called life-cycle funds. In an unfriendly economy investors have been fleeing to T. Rowe Price funds in search of quality asset management. If this trend continues over the long term, an investment in firms focused on investment advice, and not exotic tongue-twisting derivative securities, could deliver solid returns. (Not sure how these funds work? Read The Pros And Cons Of Life-Cycle Funds.)

Returns Right On Target
T. Rowe Price's target-date funds give investors an age-adjusted, risk/reward balanced investment vehicle. The target-date funds are a diversified portfolio of T. Rowe Price funds that range from large-cap and international funds to fixed-income funds. Over time the dollars invested are reallocated from risky equity investments to safer fixed-income investments based on the investors age or expected year of retirement.

At the end of 2007, assets in T. Rowe Price's target-date funds increased 73% to $30 billion representing 12% of its total assets under management. For the first quarter of 2008, a hefty 76% of T. Rowe Price's $3.7 billion in net inflows to mutual funds originated in its target-date retirement funds.

The downward spiral in the value of securities in the

U.S.

sent assets under management at T. Rowe Price down a little over $19 billion to $378 billion during the first quarter. Despite the loss of asset under management, net revenue for the first quarter ending March 31 was up 10% to $509 million led by Investment Advisory Fees. Subsequently operating income was also up 5% to $219 million.

Competitors
Many of its direct competitors like Fidelity Investments and The Vanguard Group are privately held companies. T. Rowe Price and asset management firm Invesco (NYSE:IVZ) have traded very close to each other over the past two years. Other competitors include Diamond Hill Investment Group (Nasdaq:DHIL), Federated Investors (NYSE:FII) and while not necessarily a pure-play asset management firm, its worth mentioning Franklin Resources (NYSE:BEN) with its series of Templeton Funds.

Possible Catalysts
Two factors that could drive T. Rowe Price's stock north include its short interest of 7.9 and its recently announced stock buyback approval from its board. A high short interest above 2 is a signal that there are a large number of short positions by larger investors that could cover their short positions by purchasing T. Rowe Price shares and possibly drive its stock upward. Similarly, a recently announced 15 million share stock buyback should make the remaining shares on the market more valuable. (For related reading, check out Short Interest: What It Tells Us.)

Slow and Steady
T. Rowe Price as an investment has offered solid returns over the past few year for its investors and those who bought its wide variety of equity, fixed-income and international funds. Given the volatility in the market, a dollar-cost averaging strategy would apply here as well. Investors who are eager to find the best retirement vehicles to secure their future may find their refuge in is T. Rowe Price stock itself.

To learn about the special retirement problems faced by baby boomers, read Boomers: Twisting The Retirement Mindset.

By Gregory S. Davis

Gregory S. Davis is an investment writer and consultant for his company G.Davis Capital Inc. His core methodology for choosing investments include patience, diversification and asset due diligence. Gregory is a graduate of the Wharton School of Business. He is also a board member of StoriesWork, a non-profit organization based in Durham, NC that uses storytelling to empower youth and individuals to utilize alternative dispute resolution tactics.

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