Investors often ask me how to build a portfolio that holds its own in down times but hands them soli...
A Pace Setter in the Quest for Growth
02/23/2010 10:57 am EST
Russel Kinnel, editor of Morningstar FundInvestor, and analyst Harry Milling say a fund by T. Rowe Price is an outstanding growth fund when growth may be back in style.
T. Rowe Price has a bevy of solid growth funds, but T. Rowe Price New America Growth (PRWAX) is the standout. This fund has several advantages over peers, starting with its manager.
When Joe Milano took over the large-growth fund in 2002, he had expertise as an analyst in mid-cap firms, and he was encouraged to use it here. Typically about 40% to 45% of the fund is mid cap, while the average large-growth fund has only half that.
Milano divides the fund into two buckets. The key criterion for one is faster growth and the criterion for the other is valuation.
The first bucket consists of companies with compelling market opportunities where the companies have skilled management and competitive advantages that enable them to make the most of the opportunities.
These stocks, which tend to be on the smaller end of the market-cap range, will become core holdings in the fund if things go according to plan. The fund’s relatively small asset size means it can own meaningful positions in small and mid caps, such as top holdings Global Payments (NYSE: GPN) and Dentsply International (Nasdaq: XRAY).
Milano requires meetings with several layers of management before he’ll invest. These fast-growing firms may be richly valued based on traditional metrics, but he doesn’t avoid a stock based on valuation alone if prospects can support it.
That said, Milano will buy slower growers with less durable moats when they become cheap enough, as he did with Carnival (NYSE: CCL) in early 2009 and Lockheed Martin (NYSE: LMT) in 2008.
In fact, Milano can be daring with his purchases, with stocks entering the fund well before one would expect their prices to recover. For example, he bought consumer-sensitive stocks in late 2008, like Apple (Nasdaq: AAPL) and Whole Foods Market (Nasdaq: WFMI), after they were crushed amid recessionary concerns. Both boosted 2009 returns.
Since Milano took the helm in 2002, the fund’s annualized return is 7.8% as of January 31, 2010. That beat the 5.5% return of the Russell 1000 Growth index and the average 4.4% return for the fund’s large growth category in that time. Arguably, the fund’s substantial holdings in mid-cap and small-cap stocks make index and category comparisons difficult.
Still, on an absolute basis, the fund’s 76.3% cumulative return in that time is impressive. The fund has what it takes to beat peers in bear and bull markets, as seen in 2008 and 2009.
The fund is well-aligned with shareholder interests, with Milano’s compensation geared toward the fund’s long-term returns. Milano has more than $1 million of his money in the fund.
The fund’s 0.91% expense ratio is beneath the median for no-load large-growth funds.
Growth funds require some patience from investors, but for those looking out ten to 20 years, this fund could well prove rewarding.
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