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PRWCX Semi Annual Report Dated 6/30/22

Here's the link for the 6/30/22 semi annual report for TRP Capital Appreciation Fund, PRWCX/TRAIX. As usual a very good read.

https://prospectus-express.broadridge.com/summary.asp?doctype=semi&clientid=trowepll&fundid=77954M105
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Comments

  • As I said on Armchair, I wish more PMs were as self-aware and willing to bluntly own up to positions that didn't go according to plan as Giroux. It was a brutal and honest admission about GE ... and I respect him even more for saying what he did.
  • edited August 26
    rforno said:

    As I said on Armchair, I wish more PMs were as self-aware and willing to bluntly own up to positions that didn't go according to plan as Giroux. It was a brutal and honest admission about GE ... and I respect him even more for saying what he did.

    Agreed. As long as there isn't too much of that. It's what caused me to leave Foster at SFGIX. Honesty is good, admirable. "But don't make TOO many errors. You're supposed to be GOOD at this stuff, eh?"

    Quote: "...overweight information technology stocks for the first time in many years. We have been able to add to, or initiate, positions in a number of very high-quality, long-term attractive companies—such as Apple, Nvidia, NXP Semiconductors, and Texas Instruments—as a result of short-term concerns around supply chains, recession, and near-term tough comps. I have often said that there is no easier way to make money in the stock market than to buy a high-quality company that is trading at an attractive valuation due solely to short-term concerns."

    Still, it is a clear, candid and thorough letter. My hat is off to Giroux.
  • Giroux has been more right more often than not. But of course, we all should monitor how 'our' portfolio managers spend our money and adjust as necessary!
  • That’s a very informative letter. Thanks so much for sharing it. Glad to see that Giroux sees value in IT….
  • beebee
    edited August 27
    Using Mutual Funds for Retirement Income

    I have posed this question to myself... could a fund... or funds serve as a funding source for inflation adjusted retirement income?

    Withdrawal Scenario:

    If a retiree started taking a 4% safe withdrawal rate from a $100,000 investment in PRWCX, how would this fund and the income withdrawn over time fare (3, 5,10, and 15 year) later? Portfolio Visualizer can't predict future returns, but it does allow a user to look back over stressful and successful market conditions.

    To stress test this scenario using PV, I add a market hurdle where by the retiree starts withdrawing from retirement savings at the end 2006. They buy $100,000 worth of PRWCX (or a portfolio of these types of funds) and began taking a 4% yearly withdrawal each year, from 2007 going forward ( 15 year time frame). Over the first two years of retirement, the "annuity portfolio" experienced a 41% loss in value as well as absorbed the required 4% income withdrawals (4% annuity payment). That's stressful.

    Questions:

    Over those first two years of retirement (2007 - 2009), the $100,000 portfolio (stand alone portfolio of just PRWCX) would have dropped to $63,000. Could a retiree hang in there through these first two years? The retiree's withdrawal rate of 4% may have started at $4,000 (4% of $100K), but as the portfolio dropped in value, their next year's withdrawal dwindle to a little less than $3,000 (4% of $63,00) in 2008. Having a cash/ ST bond component to this portfolio might provide a buffer...especially at the start of retirement.

    We have had an investment environment over the last 15 years that has included both monetary stimulus (QE and lowering interest rates) and market shocks (GFC, Covid, Supply disruptions and the rise interest rates). ISTM that a collection of well managed allocation funds could help individual investors balance the risks of the day with the rewards of the day.

    PRWCX seems successful at this. VWINX and VWELX are two others that I run retirement withdrawal scenarios with. Do you have a favorite? Maybe a collection of these would be a better approach. It would help reduce manager risk and might diversify manager strategies.

    Here's a link to Portfolio Visualizer where you could run some of your own scenarios:

    PRWCX as an Annuity

  • edited August 27
    @bee, I modified your PV run also for initial 4% ($4K/yr) level, initial 4% ($4K/yr) inflation-adjusted:

    Strategy, Ending balance, Notes
    4%, $218.731K, Withdrawal amounts variable; details by @bee
    4K level, $251.433K, More like an annuity
    4K infl-adj, $231.433K, Infl-adj annuity is rare commercially

    MFO doesn't preserve spacing.
  • here's one i recall investigating in 2020 at the worst of the covid business. they did not get wifey's 403b rollover money because they simply took too long to even send the requested paperwork. that fund was flying high. looks like it's had a hard fall. still above the benchmarks, though. crazy-high p/e in the portfolio.

    https://www.morningstar.com/funds/xnas/vlaax/quote

    anyhow, BRUFX ended up with the rollover money.
    https://www.morningstar.com/funds/xnas/brufx/quote
  • edited August 27
    @bee, Never owned VWINX. Been tracking it all year and am very impressed. Steady Eddy if there ever was. As of yesterday it was down less than 7% YTD. One compeditor, PRSIX i like to track is off over 10% at this point. I guess there’s a roughly .50% difference in fees, which accounts for part, but not all, of that difference,

    Just watching PRWCX almost since inception I would consider it too risky to use as the sole ingredient in a retirement / staged withdrawal plan. But I’ve been taking aim at it for couple decades now and it continues to defy my worst forebodings. Look at virtually any other fund run by T. Rowe and you’ll find periods of overperformance and underperformance. But not this one - yet. Just rambling here. Hats off to Giroux for the job he’s done. One wonders who might replace him some day.
  • David Giroux of PRWCX is only 47! He started with the fund when he was just 31 and for years people said that he was young and inexperienced but he showed them all.
    https://en.wikipedia.org/wiki/David_R._Giroux
  • @yogibearbull. you just made my day. PRWCX = 36.44% of my total.
  • David Giroux of PRWCX is only 47! He started with the fund when he was just 31 and for years people said that he was young and inexperienced but he showed them all.

    Hard to imagine anyone savvy would say such a thing; same age as Danoff and Tillinghast and their funds.
  • Peter Lynch retired as manager of the Fidelity Magellan Fund at age 46.
    Video
  • started there at 33
  • TRP will do whatever it takes to keep Giroux on PRWCX. In fact, TRP could raise ER on PRWCX and pay Giroux more. But none of that may stop when he chooses to leave. People like him who have very good clarity of thought also know when to change directions. At that time we will have to move on too. As @hank mentioned, other TRP funds have not been as consistent as PRWCX. I own PRHSX and PRWAX too. Though PRWCX is my largest fund, I wish I never took out any money I put into it.
  • Young Giroux (only 31), a capital goods analyst (who had won an industry award for analysts) but without any prior fund management experience, and without much overlap with the previous managers of PRWCX, was given the responsibility for a major fund like PRWCX in 2006. Price obviously saw the potential, but it took time for others to realize that. Amazingly, Giroux has delivered SP500 like returns with only 60-70% equity exposure (but he takes more credit risks with his bonds); screenshot shows period 1/1/2006-now. So, it isn’t a conventional moderate-allocation fund, but a capital appreciation fund that seeks higher returns than its nominal equity exposure.

    image
  • Ya...for certain, the resuls are darn tasty with PRWCX....and...what have the central banks done with their balance sheets since The Giroux has managed PRWCX....sometin' like from $7Trillion to what ~$36Trillion.

    F me to tears.

    So, sure he has done well, but that drawdown in 09' of ~37%...I think you'd have to be nuts to hold on with your entire portfolio in that kind of drawdown.

    Let's see how this all works when the CBs start pulling back like they are doing now...fasten your seat belts, enjoy the ride...let's see how the maestro's do, when the markets are open for big boys and girls only....

    But...I know, I know, unless you have a better idea...and I don't...

    Good Luck to All,

    Baseball Fan
  • edited August 28
    I reduced PRWCX and increased PRWAX at the beginning of 2021 with a thought that an impending rise in interest rates (end of some 40 yr declining interest rates) may dent PRWCX’s stellar risk adjusted performance when both equities and fixed income could suffer, especially given its size. Giroux so far proved me wrong. I am digressing but VDC (consumer staples) beat PRWCX in 2022 so far, which I did not see coming.
  • edited August 28
    - I attempted to respond directly to @bee and his query of whether PRWCX would constitute a wise sole investment for a retiree already in the distribution phase. If others think that would be a good way to go, please let @bee know.

    - I’m aware of PRWCX’s excellent risk adjusted performance record. I owned the fund from 1995 until July 2022 when I exited as part of a broader consolidation of holdings.
  • While I invest in PRWCX as many posters here, a single fund manger poses sizable risk as he/she may no longer running the fund sometime in the future. Regardless what succession plans are in place, it takes time to fully transition successfully to the new manager(s), and there is no guarantee. One way to migrate a singer manager risk is have several co-managers running the fund as a team along with Giroux. Don’t know if there is plan in place already. There are a number of TRP funds are team managed.

    I invested with Michael Price when he was running Mutual Series funds back in the 90’s. These funds have solid return while having lower average risk. Then Price sold the Mutual Series funds to Franklin while still running the funds for several years per contract agreement. Other co-managers took over one by one of the Franklin Mutual Series funds. Some was good and some were so so, but they never reach the same. David Winter was one of the more notable manager, but he left to form Wintergreen fund and that fizzled out several years later. We sold just about all Mutual Series funds soon after the Franklin sale. So beware of a single manager risk.
  • +1. And yet, a single manager keeps things simpler, when a fund holds $50B AUM. YIKES, eh?
  • The following individuals are listed by Giroux at the end of his letter and unless I am mistaken, they are all dedicated staff to PRWCX (Mike Signore, Chen Tian, Nikhil Shah, Vivek Rajeswaran, Brian Solomon, and Jared Duda) in addition to all the TRP analysts, associate analysts and quantitative analysts.

    So, while Giroux has final say on the portfolio, he is receiving a lot of assistance.

    As many of you know from previous postings, we have most of our investments in this one fund. First moved most of our retirement funds into this fund late in 2006 when Giroux was still new, just dumb luck as the move was based on prior performance of the fund and the desire to simplify and reduce volatility. Once we retire or decide 60% + in equities is more than we are comfortable with, this could very easily change. I'm very glad Giroux is 12 years younger than I as this means he may be PM another 10-15 years, fingers crossed!
  • beebee
    edited August 28
    @Roy, you have what it takes to hold such a fund… more power to you.

    @Sven, PRWCX may fall into “group think”… I owned Pimco Income and then the winds changed… winds change so we adjust your sails.

    @hank, thanks for your suggestion and comments… In 2023, with retirement looming, I have structured a portion of my portfolio to provide short term income needs. I am comfortable with a 10% loss over the short term (5 years or less) so positions in cash, ST Bonds and funds such as VWINX will hopefully meet my yearly income needs.

    If I am lucky enough to not need all of my portfolio to continually fund my 5 year income needs, I will fund longer term investment in funds like PRWCX. I also feel funds in the healthcare and Tech sector (nod to @Ted) continue to be long term trends that I would also consider.
  • @bee, I too used to invest with Pimco Income, but it has sizable outflow this year with rising rates. If Fed continues to raise rates in order to fight off inflation, buying treasuries and holding them to maturity is a few way to survive.
  • I noticed on the TRP website for the portfolio of PRWCX dated 8/31/22 that GE is no longer listed as a top 10 holding. Don't know if this is due to trimming the position a bit or total elimination of it.
  • edited September 10
    Roy said:

    I noticed on the TRP website for the portfolio of PRWCX dated 8/31/22 that GE is no longer listed as a top 10 holding. Don't know if this is due to trimming the position a bit or total elimination of it.

    Yes, and TRP is clunky when it comes to looking at a fund's portfolio beyond the top 10. In fact, I found it IMPOSSIBLE to find. Geniuses at work there, on their website. Clicking on the link labeled "See complete holdings" takes you around in circles---to nowhere.

    Dated 30th June, '22, from Giroux:
    "So why do we continue to hold GE? First, we have a large catalyst over the next 18 months as GE will be split into three companies. The health care business will be spun off in early 2023 and we believe this security will receive an attractive valuation given its mid-single-digit organic growth rate, margin expansion opportunity, double-digit earnings growth, and strong free cash flow. Second, the power and renewables businesses will be spun off in 2024. The leader who turned around the power business is now leading the renewables business and we have high hopes that it will be a mid-single-digit operating margin business by 2025–2026 under his leadership. Today, the market is effectively capitalizing the losses in renewables forever. The renewables business does not deserve to have an 11-figure negative value just because it is currently losing money. Third, aviation is a great business that should be poised for a decade-plus of excellent growth given how young its fleet of engines is (many have yet to go through their first or second overhaul). The sooner this business is freed from the renewables business, the better. Fourth, and maybe most importantly, even using conservative assumptions we believe the upside in GE is still substantial. When I look back over the last four years of GE, the company has had some incredibly bad luck between COVID, the supply chain, Russia, and a sudden decline in wind turbines due to a lack of renewal of the wind tax credit. But these haven’t been the only problems with our investment in GE; I have also made some process errors along the way. The range of outcomes and degree of predictability of GE has always been larger than many of our other large holdings, and as such it should have been a much smaller holding. While I continued adding to GE during periods of weakness, I was less aggressive reducing the position during periods of strength..."
  • edited September 10
    Price website shows Top 10 monthly. I suppose after admitting that he was frustrated and not happy with GE, he decided to sell - it is gone from Top 10 but he may be holding a small position. Here is the monthly status of GE (scroll to Holdings/Top 10 Holdings),
    https://www.troweprice.com/financial-intermediary/us/en/investments/mutual-funds/us-products/capital-appreciation-fund.html

    Date, %, #
    12/31/21, 4.41%, 4
    1/31/22, 4.59%, 4
    2/28/22, 4.67%, 3
    3/31/22, 3.79%, 3
    4/30/22, 3.22%, 2
    5/31/22, 3.38%, 3
    6/30/22, 3.05%, 4
    7/31/22, 3.01%, 4
    8/31/22, Gone from Top 10
  • Edgar reports PRWCX's quarterly GE holdings as:

    12/31/21 25,143,114 shares, 4.41% of holdings
    03/31/22 21,712,776 shares, 3.80%
    06/30/22 21,005,868 shares, 2.93%

    GE stock is nearly unchanged since 07/31 (ignoring the 8¢ dividend on 08/25). It would have to be less than 2.19% of PRWCX assets to fall off the 08/31 top ten list. That's ~27% less than the 3.01% at the end of July, so it looks like a healthy fraction, if not all, was sold during August.
  • Which company replaced GE in the top ten?

    Good to see Giroux not staying stubborn. Also, good to see he is not making all or nothing bets and is only making gradual moves until a clear company ( not stock technical) related signal is seen.
  • What in PRWCX caused it to lose more than FXAIX and QQQ today?
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