T. Rowe Price Global Allocation (RPGAX), December 2013

By David Snowball

Objective and Strategy

The fund’s objective is to seek long-term capital appreciation and income by investing in a broadly diversified global portfolio of investments, including U.S. and international stocks, bonds, and alternative investments.  The plan is to add alpha through a combination of active asset allocation and individual security selection.  Under normal conditions, the fund’s portfolio will consist of approximately 60% stocks; 30% bonds and cash; and 10% alternative investments.  Both the equity and fixed-income sleeves will have significant non-U.S. exposure.

Adviser

T. Rowe Price. Price was founded in 1937 by Thomas Rowe Price, widely acknowledged as “the father of growth investing.” The firm now serves retail and institutional clients through more than 450 separate and commingled institutional accounts and more than 90 stock, bond, and money market funds. As of September 2013, the firm managed approximately $650 billion for more than 11 million individual and institutional investor accounts.

Manager

Charles M. Shriver, who technically heads the fund’s Investment Advisory Committee.  As the chair he has day-to-day responsibility for managing the fund’s portfolio and works with the other fund managers on the committee to develop the fund’s investment program. Mr. Shriver joined Price in 1991 and began working as an investment professional in 1999.  In May 2011 he became the lead manager for Price’s Balanced, Personal Strategy and Spectrum Funds (except for Spectrum International, which he picked up in May 2012).  Stefan Hubrich, Price’s director of asset allocation research, will act as the associate manager.

Strategy capacity and closure

Given the breadth of the fund’s investment universe (all publicly-traded securities worldwide plus a multi-strategy hedge), Price believes there’s no set limit.  They do emphasize their documented willingness to close funds when either the size of the fund or the rate of inflows makes the strategy unmanageable.

Management’s Stake in the Fund

Not yet available.  Mr. Schriver has a total investment of between $500,000 and $1,000,000 in the other funds he helps manage.

Opening date

May 28, 2013.

Minimum investment

$2,500, reduced to $1,000 for IRAs.

Expense ratio

1.05% on assets of $53 million.  Expenses are capped at that level at least until February 29, 2016.

Comments

It’s no secret that the investing world is unstable, now more than usual. Governments, corporations and individuals in the developed world are deeply and systemically in debt. There’s anxiety about the consequences of the Fed’s inevitable end of their easy-money policy; one estimate suggests that a one percentage point rise in the interest rate could cost investors nearly $2.5 trillion.  Analysts foresee the end of the 30 year bull market in bonds, with some predicting 20 lean years and others forecasting The Great Rotation into income-producing equity.  The great drivers of economic growth in the developed world seem to be lagging, China might be restructuring and the global climate is destabilizing with, literally, incalculable results.

Where, in the midst of all that, does opportunity lie?

One answer to the question, “what should you do when you don’t know what to do?” is “do nothing.”  The other answer is “try a bit of everything!”  RPGAX represents an attempt at the latter.

This is designed to be Price’s most flexible, broadly diversified fund.  Its strategic design incorporates nearly 20 asset classes and strategies.  Those will include, including:

  • both large and small-cap domestic and developed international equities
  • both value and growth global equities
  • emerging market equities
  • international bonds
  • short-duration TIPS
  • high yield, floating rate
  • emerging market local currency bonds
  • a multi-strategy hedge fund or two.

Beyond that, they can engage in currency hedging and index call writing to manage risk and generate income that’s uncorrelated to the stock and bond markets.

In short: a bit of everything with a side of hedging, please.

This fund is expected to have a risk profile akin to a balanced portfolio made up of 60% stocks and 40% bonds.

It’s entirely likely that the fund will succeed.  Price has a very good record in assembling asset allocation products.  T. Rowe Price Retirement series, for instance, is recognized as one of the industry’s best, most thoughtful options.  Where other firms started with off-the-cuff estimations of appropriation asset mixes, Price started by actually researching how people lived in retirement and built their funds backward from there.

Their research suggested we spent more in retirement than we anticipate and risk outliving their savings. As a result, they increased both the amount of equity exposure at each turning point and also the exposure to risky sub-classes.  So it wasn’t just “more equity,” it will “more international small cap.”  Both that careful design and the fund’s subsequent performance earned the series of “Gold” rating from Morningstar. 

In 2013 they realized that some investors weren’t comfortable with the extent of equity exposure, and created an entirely separate set of retirement funds with a milder risk profile.  That sort of research and vigilance permeates Price’s culture.

It’s also reflected in the performance of the other funds that Mr. Shriver manages.  They share three characteristics: they are carefully designed, that are uniformly solid and dependable, but they are not designed as low risk funds. 

Morningstar’s current star ratings illustrate the second point:

Star rating:

3 Year

5 Year

10 Year

Overall

Balanced RPBAX

4

4

4

4

Personal Strategy Balanced TRPBX

4

4

4

4

Personal Strategy Growth TRSGX

5

5

4

5

Personal Strategy Income PRSIX

4

4

4

4

Spectrum Growth PRSGX

3

3

4

3

Spectrum Income RPSIX

3

3

3

3

Spectrum International PSILX

3

4

4

4

At the same time, the funds’10 year risks are sometimes just average (Spectrum Income) but mostly above average (Balanced, Personal Strategy Balanced, Personal Strategy Income, Spectrum Growth, Spectrum International).  But never “high.”  That’s not the Price way.

Bottom Line

Investors who have traditionally favored a simple 60/40 hybrid approach and long-term investors who are simply baffled by where to move next should look carefully at RPGAX.  It doesn’t pretend to be a magic bullet, but it offers incredibly broad asset exposure, a modest degree of opportunism and a fair dose of risk hedging in a single, affordable package.  In a fund category marked by high expenses, opaque strategies and untested management teams, it’s apt to stand modestly out.

Fund website

T. Rowe Price Global Allocation

© Mutual Fund Observer, 2013. All rights reserved. The information here reflects publicly available information current at the time of publication. For reprint/e-rights contact us.
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About David Snowball

David Snowball, PhD (Massachusetts). Cofounder, lead writer. David is a Professor of Communication Studies at Augustana College, Rock Island, Illinois, a nationally-recognized college of the liberal arts and sciences, founded in 1860. For a quarter century, David competed in academic debate and coached college debate teams to over 1500 individual victories and 50 tournament championships. When he retired from that research-intensive endeavor, his interest turned to researching fund investing and fund communication strategies. He served as the closing moderator of Brill’s Mutual Funds Interactive (a Forbes “Best of the Web” site), was the Senior Fund Analyst at FundAlarm and author of over 120 fund profiles. David lives in Davenport, Iowa, and spends an amazing amount of time ferrying his son, Will, to baseball tryouts, baseball lessons, baseball practices, baseball games … and social gatherings with young ladies who seem unnervingly interested in him.