While some of T. Rowe's best funds are closed, it's still possible to use the firm as a one-stop shop.
By Christine Benz | 09-14-15 | 12:00 AM | Email Article

T. Rowe Price is one of a fairly small handful of firms where one could reasonably stick exclusively with the "house brand" of funds. Although its U.S. equity funds are the most widely recognized in the lineup, its international-equity and fixed-income offerings are also solid. And while T. Rowe fund expenses aren't Vanguard-low, most earn "fee level" scores of below average or low.

Christine Benz is Morningstar's director of personal finance and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances and the Morningstar Guide to Mutual Funds: 5-Star Strategies for Success. Follow Christine on Twitter: @christine_benz.

T. Rowe Price is also a rare publicly traded asset manager that has successfully balanced the interests of both its fundholders and the holders of  T. Rowe Price stock. Although the temptation to earn a quick buck by rolling out trendy new funds has been too much for many rivals, T. Rowe has generally fielded a utilitarian lineup. And while manager departures have picked up in recent years--some planned, some unplanned--T. Rowe has historically done a good job of retaining its investment personnel. Nor has the firm been reticent to close funds pre-emptively in an effort to preserve performance: As of late August 2015, 10 of the firm's 135 funds were closed to new investors.

Yet, those closures present a few challenges for investors building a well-rounded T. Rowe Price portfolio from scratch today. Some of the firm's best actively managed funds land in the small- and mid-cap rows of the Morningstar Style Box, and those are the very funds that are closed to new investors: Standouts like  T. Rowe Price Mid-Cap Growth ,  New Horizons , and  Mid-Cap Value , for example, are all closed, though current shareholders and investors in 401(k) plans may continue to buy them. Meanwhile, a few of the firm's top-tier funds, like  T. Rowe Price Equity Income , have recently undergone manager changes, prompting downgrades in their ratings. (Equity Income retains a Morningstar Analyst Rating of Bronze, however.)

In this article, I'll feature model T. Rowe Price portfolios for investors who are accumulating assets for retirement in tax-deferred accounts such as IRAs; that means I developed them without regard for ongoing dividend or capital gains distributions.

Portfolio Basics
As with my Fidelity and Vanguard Retirement-Saver portfolios, I've created Aggressive, Moderate, and Conservative versions for the T. Rowe Price Retirement-Saver portfolios. I used Morningstar's Lifetime Allocation Indexes to help guide their asset-class exposures, and populated the portfolios with  Morningstar Medalist funds.

Investors should use their proximity to retirement to help determine which portfolio is the best fit for them, while also taking into consideration the presence of other income sources they'll be able to rely on during retirement. To use a simple example, a 55-year-old investor with a pension that will provide all of her in-retirement income needs could reasonably employ the Moderate or even Aggressive versions, assuming she has a high risk tolerance to match her high risk capacity. (This article explains the important difference.) At the opposite extreme, a 30-year-old who enters a high-anxiety state during volatile markets might employ the Moderate portfolio, even though his time horizon is long enough to support a higher equity weighting.

Aggressive T. Rowe Price Retirement-Saver Portfolio
Anticipated Time Horizon to Retirement: 40 years

20%:  T. Rowe Price Dividend Growth
15%:  T. Rowe Price Equity Index 500
10%:  T. Rowe Price New America Growth
10%:  T. Rowe Price Small-Cap Value
30%:  T. Rowe Price Overseas Stock
5%:  T. Rowe Price International Discovery
5%:  T. Rowe Price New Income
5%: T. Rowe Price Real Assets

I've used the Morningstar's Lifetime Allocation Aggressive 2055 Index, geared toward an investor with a high risk tolerance and a roughly 40-year time horizon, to guide this portfolio's weightings. Because of its long time horizon, the portfolio allocates more than 90% of assets to equities.

I've anchored the portfolio with two of T. Rowe's better active large-cap funds, the Silver-rated Dividend Growth, a large-blend fund, and the Bronze-rated T. Rowe Price New America Growth, a large-growth offering. The former has been run by Tom Huber for the past 15 years, but the latter has a fairly new manager in Dan Martino, who took over two years ago from Joe Milano. New America Growth was recently upgraded to Bronze from Neutral, as senior analyst Laura Lallos has gained confidence in Martino's abilities running a diversified fund. Lallos also notes that Martino is running it as more of a straight-ahead large-growth fund than Milano did; that may make it an easier-to-use portfolio building block.

I also included a slice of an equity index fund as well as a position in T. Rowe Price Small-Cap Value. Small-Cap Value, too, has a fairly new manager in David Wagner, who took over when Preston Athey retired a year ago. Senior analyst Katie Reichart notes that the fund's performance has been underwhelming since Wagner took over, but the fund has retained its Bronze rating thanks to its deep analyst resources, sensible strategy, and reasonable costs in an often-pricey category. (Of course, the fund is the largest non-index small-blend fund, so it ought to be cheap.)

For the portfolio's sizable international allocation, I used the Bronze-rated T. Rowe Price Overseas Stock to provide exposure to larger-cap stocks from developed markets; senior analyst Bill Rocco likes its moderate strategy, broad diversification, and the experience that manager Ray Mills brings to the table. To help add a little zip to the foreign stake, I included a small position in T. Rowe Price International Discovery, which focuses on small- and mid-cap stocks--primarily growth names--and comprises a meaningful emerging-markets weighting.

In keeping with the Lifetime Allocation Index 2055/Aggressive weighting, I added a small stake in T. Rowe's core intermediate-term bond fund, the sturdy T. Rowe Price New Income. Its manager, Dan Shackelford, aims to outperform the Barclays U.S. Aggregate Bond Index on a risk-adjusted basis by taking modest bets relative to that benchmark. In charge since 2002, he has delivered reliable performance over several market cycles, according to senior analyst Cara Esser. The portfolio also includes a slice of "real assets exposure"--mainly REITs and basic-materials stocks--to supply diversification and inflation protection.

Moderate T. Rowe Price Retirement-Saver Portfolio
Anticipated Time Horizon to Retirement: 20 years

20%: T. Rowe Price Dividend Growth
15%: T. Rowe Price Equity Index 500
10%: T. Rowe Price New America Growth
10%: T. Rowe Price Small-Cap Value
20%: T. Rowe Price Overseas Stock
5%: T. Rowe Price International Discovery
15%: T. Rowe Price New Income
5%: T. Rowe Price Real Assets

Although it's geared toward an investor with a shorter time horizon than the Aggressive portfolio--someone who has about 20 years to retirement--this portfolio is also quite stock-heavy, with 80% of assets in stocks. Its only variance with the Aggressive portfolio is that its foreign stake is lower while its bond position is larger. Because bonds are still a small slice of the total pie, a single high-quality core fund does the job; a lot of additional moving parts are unnecessary.

Conservative T. Rowe Price Retirement-Saver Portfolio
Anticipated Time Horizon to Retirement: 5 years

15%: T. Rowe Price Dividend Growth
15%: T. Rowe Price Equity Index 500
5%: T. Rowe Price Small-Cap Value
15%: T. Rowe Price Overseas Stock
30%: T. Rowe Price New Income
7%:  T. Rowe Price Short-Term Bond
8%: T. Rowe Price Inflation-Protected Bond
5%: T. Rowe Price Real Assets

Geared toward an investor with just five years until retirement, this portfolio has a sizable 45% weighting in bonds. If stocks encounter a major downdraft in the years prior to the pre-retiree's anticipated retirement date, the bonds should serve to stabilize the portfolio. Because the bond position is larger than is the case in the Aggressive and Moderate portfolios, it's also better diversified. It's too early to start hoarding cash in bucket one (as in the bucket system), but I have included a stake in short-term bonds to protect the portfolio in case of interest-rate hiccups. I've also included a stake in inflation-protected bonds to help protect the purchasing power of the portfolio's bond sleeve. T. Rowe only fields a single TIPS fund (Vanguard, by contrast, offers a core TIPS fund as well as a short-term offering), but the T. Rowe fund's duration is lower than some core TIPS funds, including  Vanguard Inflation-Protected Securities .

Given that the portfolio will need to last another 30 years or more, it's important that it maintains a still-high equity allocation to provide long-term growth. Stocks account for half of the assets in the Conservative portfolio, and I've retained allocations to Overseas Stock and Small-Cap Value. However, I've generally aimed to steer the equity portfolio in a lower-volatility direction, slicing its stakes in New American Growth and International Discovery. 

How to Use
As with all of the model portfolios, the key goal here is to depict sound asset-allocation and portfolio-management principles. Investors can and should plug in another fund in the same category if one of the funds I've named here is unavailable or if I've omitted one of their favorites. I'll aim to make few changes to the portfolio on an ongoing basis, as a hands-off strategy tends to work best for most investors.

Securities mentioned in this article

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Christine Benz does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.
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