One on One is a weekly feature offering excerpts of interviews conducted by The Evening Sun with newsworthy business leaders. George J. Collins is president and chief executive officer of T. Rowe Price Associates Inc., a Baltimore-based mutual funds company.
Q.Sales in mutual stock funds have been shooting up in the past few months. How much have they increased for T. Rowe Price since January and why are they going up?
A.Sales in our funds are up $2.1 billion roughly in the first quarter and in fact our net cash flow for the first quarter is around $520 million. I think for all of last year our net cash flow was $260 million for stock funds, roughly $50 million for bond funds, so about $310 million in total [excluding dividend reinvestments in individual accounts]. So this has been an extraordinary quarter and it has been particularly good on the equity side. And of course performance on a number of our stocks funds has been absolutely super in the first quarter. It has been since October when the market turned. New Horizon's [fund] year-to-date is up 28 percent, Growth and Income is up 21 percent, New America Growth is up 26 percent, and the real winner has been the Science & Technology Fund, which is up 44 percent in the first quarter. Those are big, big returns.
Q. So why are they going up in your opinion?
A. The market has a better tone to it because the Federal Reserve Bank has eased, the investor is of the belief that the economy is showing some early signs of coming out of the recession. . . . The war definitely helped. That was a big question mark in everybody's mind. Whether we were going to get bogged down in a land war and it's going to be devastating. It soon became clear that we were not going to get bogged down in a long land war. Consumer confidence has returned also, and consumer confidence is better, and investor confidence is better.
Q. I also understand that high-yield bonds generally known as junk bonds are also on the way back. How have they been faring lately and are they becoming more popular?
A. We went from a negative cash flow to a very positive cash flow position in the high-yield fund sometime back in the fall. Just looking at the returns in the high-yield fund, the return last year was minus 11 percent but it is now up 12 percent since the beginning of the year. That sector suffered last year with the thought that the recession was going to hit, and hit hard, and that those companies would have great difficulties. Liquidity has come back to the market; there's more buy interest. Part of it is companies buying in their debt. Some companies that were in trouble have had better-than-expected cash flows. They've been buying the debt at very cheap prices because the investor bailed out and bailed out big. . . . So that's been very positive; it's created more liquidity in that market, plus with the economy, with people thinking that the economy is going to improve, that in itself has helped these companies. So the investor's returns are better, and we're seeing positive cash flow in the fund for the first time in a long time. Our high-yield fund peaked at $1.2 billion and went as low as $540 million and it is now $680 million with a good steady cash flow. Yields are still very attractive in that area.
Q. When I came in here, I just noticed that your office is nice and comfortable, yet it's not exactly the palatial office of the CEO. I also talked to you in the past, and you
told me that the executives in your company fly coach, they don't have a company jet. Is there a particular philosophy behind the way executives are treated in this company as opposed to other companies?
A. We think they are treated well. I certainly hope so. One could tell from the turnover rate that we treat them pretty well. We tend to keep the people we want to keep, and we don't have too many problems trying to hire the young talent that we see out there when we want to hire it. But, you have to watch your costs and particularly in an environment like this. . . . We don't own a corporate jet. At one time, we flew first class on long flights. I'm sure that a number of people in the firm that do quite a bit of flying, I would say myself, would like to fly first class, but it's a big cost differential, and we hope some of that savings comes back to the shareholder. You mentioned office space. We are either the best or the worst users of office space in town, I think. Probably more people are crammed in a smaller space than anywhere else. If I wanted a larger office, I don't think I could have it. . . . We have management committees, a very effective way of managing a business such as ours. The major players are making the major decisions. The quality of the decision tends to be better with a management committee type situation.
Q. Another common feature among some companies are golden parachute agreements and also what's known as the golden handcuff agreements. Do you have anything like that in T. Rowe Price?