Journey Tree is always on the lookout for the top mutual funds in a variety of asset categories in order to construct the portfolios that best meet client needs. Our research process involves occasionally meeting with company representatives to get all of our questions answered. Jonathan recently returned from a visit to T. Rowe Price, an investment firm located in Baltimore, Maryland.
T. Rowe Price mutual funds have begun popping up with some regularity in the results of our recent investment research. Drawn to their strong security selection, excellent credit analysis, low management fees, and rigorous risk management process, we have begun to use several of their funds in client portfolios.
Jonathan had an opportunity to talk in depth over 6 hours with 3 T. Rowe Price team members including Portfolio Manager Toby Thompson, Tax-Exempt Fixed Income Portfolio Specialist Chris Dillon, and Chief U.S. Economist Alan Levenson. Here are a few highlights from those discussions.
- They are having a hard time finding value in the stock market. Stocks look expensive, especially in light of declining corporate earnings.
- They see low prices for commodities (such as oil) continuing for some time given global economic weakness, particularly in Brazil and China.
- The trend for interest rates is up in the U.S., but rates are not likely to rise rapidly and may be lower for longer than people think.
- T. Rowe Price is emphasizing capital preservation with tax-free municipal bonds and is actively avoiding states that have funding problems with their public pension plans.
- We are getting closer to having a recession with profit margins starting to turn down and a lack of dynamism in the economy.
- China continues to be a concern with their rapidly increasing debt load, misallocation of capital, and problems crafting effective economic policy. Debt problems at Italian banks may soon pose new problems for the European Union.
- Bank loan funds are one of the most attractive areas given relatively high yields (3.5%-4%) and the fact that they tend to perform well during periods of rising interest rates because rates on their underlying investments adjust upward, unlike other types of fixed income investments.
As always, we will continue to assess the performance of all of our funds regularly and make changes to our lineup as circumstances warrant.