This moderate-allocation fund offers exposure to a wide range
of asset classes, with experts in each area contributing their
best ideas. Boasting a low expense ratio and turnover rate, this
one-stop shop is perfect for long-term investors seeking growth
Investors and advisors have long touted the importance of
maintaining a diversified portfolio to limit damage from weakness
in a particular sector or asset class. Although last year's market
turmoil took its toll on even the most well-balanced
portfolios--the imminent collapse of the financial system spurred
an unprecedented wave of indiscriminate selling--the market's
recovery serves as a reminder that diversification still works and
cooler heads will prevail.
Take, for example, the fortunes of
T. Rowe Price Personal Strategy Income
). This moderate-allocation fund typically boasts over 1,000
holdings and allocates 30 to 50 percent of its assets to equities,
30 to 50 percent to bonds and 10 to 30 percent to money market
funds in an effort to generate income and growth while insulating
investors against the market's vicissitudes.
Longtime lead manager Edmund Notzon III serves as the head of T.
Rowe's asset allocation committee, which determines the asset mix
for this fund, as well as the other offerings that Notzon helms in
the Personal Strategy series. This group meets monthly to review
and approve the fund's portfolio composition, seeking to identify
relatively undervalued asset classes that might warrant an
overweight position over the next six to 18 months.
The fund's underlying components include large-cap and small-cap
stocks with growth- and value-style allocations among US large-cap
equities, developed non-US and emerging-market equities, high-yield
and core investment-grade bonds, and non-US dollar-denominated
fixed-income securities. Stock selection within these areas
devolves to the managers of some of T. Rowe's top mutual funds.
This approach served the fund well up until last year, when
upheaval in equities and bond markets resulted in a 20.4 percent
loss, by far the worst annual performance in its history.
Despite this substantial loss, the fund's steady outperformance
of both its benchmark and its peers places it in the top 15 percent
moderate-allocation category over the past three years and in the
top 8 percent over the past 5 years.
And management's asset allocation strategies, coupled with the
stock-picking acumen of the sub-advisors, have propelled the fund
to a 21.2 percent gain in 2009--better than 19 percent of its
competitors. Rather than lick his wounds, Notzon licked his chops
in the wake of the market collapse, rebalancing the portfolio and
upping the fund's stock holdings from a 3 percent overweight to a 5
percent overweight. As Notzon puts it, "We wanted to have as much
equities exposure during the recovery as we did during the
Notzon also credits the sub-advisors, who took full advantage of
the opportunities afforded in such a dislocated market. Because
prices took a hit across the board, the stock-pickers were able to
buy the best companies and sell the worst.
JP Morgan Chase
) cracked the fund's top ten equities holdings in April, providing
exposure to the rally in financial shares. Along these lines,
Bank of America
) entered the top ten in June and has stayed there through August.
And the fund built substantial positions in technology giants like
) when those stocks were undervalued.
On the income side, a decision to increase exposure to
high-yield bonds from a 3.2 percent underweight (relative to its
fixed-income benchmark) to a 2 percent overweight has paid off in
the recent rally, and Notzon emphasizes that he has absolute trust
in Mark Vaselkiv's selections.
The manager of
T. Rowe Price High-Yield
), Vaselkiv "pathologically avoids companies that could go bankrupt
Going forward, Notzon expects the fund to increase its exposure
to international markets--one of the reasons behind the fund's
slight overweighting of large-cap stocks, which generally offer
greater exposure to overseas growth than their small-cap brethren.
And the fund is gradually building a 10 percent neutral weighting
in emerging-market bonds and non-US dollar-denominated bonds, a
process that's roughly half way to completion.
If you're a long-term, retirement-minded investor looking for
growth and income, this diversified fund is your one-stop shop for
exposure to a broad array of asset classes. And with an expense
ratio that's lower than 20 percent of its peers and an investment
strategy that limits portfolio churn, you don't have to fret about
fees and taxes eating into your returns.
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