Customers flock to T. Rowe Price for steady gains

THE MUTUAL FUND TORTOISE

June 21, 1992|By Timothy J. Mullaney | Timothy J. Mullaney,Staff Writer

To small investors, the 1987 stock and bond market crashes were terrifying. To Jim Riepe they were great -- eventually. Savers thought little of last year's free fall of short-term interest rates. Jim Riepe thought it was great. The government is still smarting over collapsing savings and loans. Jim Riepe says, hey, it worked out for us. But then, he would.

Mr. Riepe is managing director in charge of T. Rowe Price Associates Inc.'s mutual fund business, over which, recession or not, the skies haven't been cloudy for days and days. After setting records in 1991 for attracting new business, the company has already beaten those records this year. It almost couldn't be easier.

"People looked at institutions they used to think were inviolate, having troubles on the front page of the newspaper," said Mr. Riepe. "We've benefited from a shift of assets that the banks and thrifts have lost. . . . To the extent that the environmental factors have changed in ways that favor us, we had no control over this.

"That's the only thing that's kept us humble."

That's a little too humble. The simple version of the last two years -- 1991 profits up 45 percent, fund assets up 36 percent to $23.4 billion since the end of 1990, and T. Rowe's stock up 46 percent percent from 1990's end -- is that opportunity met preparation.

"They're a high-quality investment manager," said William Dougherty, president of Boston-based investment advisers Kanon Bloch Carre & Co. "The investment people at T. Rowe Price are among the best in the country."

But Mr. Riepe is still mostly right. The mutual fund business is booming, in large part because of problems with other places people could put their money.

Certificates of deposit that once paid 10 percent or more now pay 5 percent or less, pushing people into stocks or bonds to seek higher returns. But many of those investors -- and some who might have picked their own stocks before the big market swings of the mid-1980s to late 1980s -- are leery of the volatility, real and perceived, in the markets and may turn to mutual funds for help.

And the fund boom isn't helping just T. Rowe Price.

The mutual fund industry as a whole gained $280 billion in assets just last year, said Erick Kanter, a spokesman for the Investment Company Institute, a mutual fund industry trade group in Washington.

That's a 26 percent gain, helped by the second-best year ever for mutual fund sales and by a rising stock market that boosted asset values, Mr. Kanter said.

And the tide keeps rolling. Mutual fund assets jumped another $98 billion in just the first four months of 1992 -- an increase larger than the $94.5 billion total the whole industry had under management in 1980. The addition brought total assets to $1.44 trillion at the end of April, Mr. Kanter said.

Not bad, especially considering that the stock market was moving mostly sideways during those months. But the numbers beg the question: Is T. Rowe Price doing anything in particular right, or is it just riding the wave?

"I don't think there are nice, supportable answers," said A. Michael Lipper, president of Lipper Analytical Services Inc., a Summit, N.J.-based financial publishing firm that ranks mutual funds. "The dollars are up -- [but] market share is flat to down a bit. Why? Some of the other groups spend more money, and some of the spending is more skillful."

T. Rowe Price has changed with the times. But true to the culture of the 55-year old company, the changes have been incremental.

The company has pushed hard to reach beyond its core business of selling mutual funds to individuals. Now, almost 15 percent of its assets under management come from 401(k) plans and other "defined contribution" plans that are slowly gaining a bigger share of the retirement plan market as pensions become more expensive. "It's growing rapidly and expected to grow by several billion more over the next three years," T. Rowe Price spokesman Steven Norwitz said.

Also, T. Rowe Price has been pushing its offerings through education programs, both in the 401(k) market and directly to individual consumers, that have won plaudits throughout the industry.

The best-publicized effort has been a retirement-planning kit the company has sent to 340,000 people since 1989, plus 50,000 copies of a computer version it began selling for $15 (the hard-copy version is free) in February. About 5 percent of the non-customers who have received the retirement kit later opened accounts with T. Rowe Price, giving the firm about 11,000 new customers.

"Our customers get a kit that's much more generic and useful and much less sales-y" than competing mutual fund groups put out, Mr. Norwitz said.

The company has also introduced six new funds since 1990, pushing its total to 41. That pace is slightly slower than that of the industry as a whole, according to figures supplied by Lipper Analytical. Included are new or expanded offerings in the international arena, municipal bond funds and mortgage security funds.

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