retirement savings  |  october 28, 2024

How our funds generated more return, more often

Our active management approach made a difference for clients over the long term.

 

Key Insights

  • Our 20-year study shows that T. Rowe Price's active funds, on average, outperformed comparable passive funds over 10-year periods, rolled monthly.

  • This relative performance looks more compelling when compared with the average for the rest of the industry and the average of the five largest active managers.

  • The analysis included fees and expenses to provide a realistic picture of performance.

Many investors believe that most active managers cannot outperform passive funds. They may be missing opportunities:

  • Over the past two decades, T. Rowe Price’s funds, on average, outperformed comparable passive funds more frequently—and by a wider margin—than the average of the five largest active managers.

  • T. Rowe Price’s performance record looks even more compelling when compared with the average for the rest of the industry.

A history of outperformance, even after fees and expenses

Our analysis of Morningstar Direct data shows that T. Rowe Price’s actively managed funds, on average, outperformed comparable passive funds over 10-year periods, rolled monthly.1

Our funds’ strong excess returns (see box below) stood out relative to other active managers:

  • The five largest active managers’ funds, on average, delivered more return than comparable passive funds, likely reflecting cost efficiencies and other benefits of scale.

  • But these gains still fell short of the additional return that T. Rowe Price’s funds generated versus comparable passive funds.

Our analysis included fees and expenses to provide a realistic picture of performance that reflects the returns investors would see when reviewing their account statements.

The 20-year time frame used in the study resulted in a sizable dataset that captured performance in a variety of markets. Two decades may also align with a meaningful portion of the accumulation phase for investors’ retirement accounts.

More return than comparable passive funds, across more periods

(Fig. 1) 10-year periods, rolled monthly, over the 20 years ended June 30, 2024

More return than comparable passive funds, across more periods Pie Charts with Text

View standardized returns and other information about the funds in this analysis (PDF). View more information on the methodology of this analysis (PDF). Past performance is no guarantee of future results.
Sources: T. Rowe Price and Morningstar (see Additional Disclosure). All data analysis by T. Rowe Price. Funds are categorized by Morningstar’s classifications.
188 funds covering 7,778 rolling 10-year periods.
2507 funds covering 42,548 rolling 10-year periods, excluding T. Rowe Price.*
35,166 funds covering 364,797 rolling 10-year periods, excluding T. Rowe Price.
*The active assets under management (AUM) as of June 30, 2024, across all funds considered in the analysis are aggregated, and those funds offered at any point in the analysis period by the largest five active fund managers by AUM (other than T. Rowe Price), as identified by Morningstar, are grouped together here. Comparable passive funds are (1) mutual funds and exchange-traded funds (ETFs) classified as an “index fund” in the Morningstar Direct database and (2) in the same Morningstar category as the active funds being analyzed. All Active Managers represents the actively managed (non-index fund) mutual funds and ETFs in the Morningstar Direct database, excluding those managed by T. Rowe Price. The performance of the T. Rowe Price active funds, the Five Largest Active Managers funds, and the All Active Managers funds were compared against the comparable passive funds using 10-year periods, rolled monthly, over the 20 years ended June 30, 2024. The study analyzed all open-end funds and ETFs within U.S. Morningstar categories where passive funds are present. The oldest share class returns are used for analysis. Money market funds are excluded from the analysis.

Active success rates

The active success rate records the percentage of rolling periods in which an actively managed fund’s returns beat its relevant passive returns average over a specified rolling time frame. Think of this as the frequency of better returns.

Why the frequency of outperformance matters

Performance across different market environments is an important consideration that point-in-time returns do not necessarily capture. Think about the appeal of strategies that have a track record of consistent outperformance relative to one-hit wonders that captured lightning in a bottle for a brief period. This frequency of better returns is reflected in a fund’s active success rate (see box above).

How did these results stack up to the rest of the industry?

The broader universe of active fund managers outperformed comparable passive funds about half of the time. The five largest active managers’ funds posted better returns in 62% of the 10-year rolling periods studied.

Our funds delivered more return, more often over the long term.

The T. Rowe Price difference

Some active managers have struggled to outperform comparable passive funds over the long term. But investors who dismiss all active managers out of hand risk overlooking the potential opportunities lurking in the details.

The T. Rowe Price investing approach, which is rooted in rigorous research and experienced risk management, made a difference for clients. On average, our funds generated higher returns than comparable passive funds, with greater frequency, over rolling 10-year periods.

Excess Returns

Each active fund’s performance is measured against the passive returns average, or the equally weighted average of the returns posted by the oldest share class of the index funds in its Morningstar category. Excess return is the difference between the active fund’s performance and its passive returns average.
Think of this as the amount of better returns.

Call 1-800-225-5132 to request a prospectus or summary prospectus; each includes investment objectives, risks, fees, expenses, and other information you should read and consider carefully before investing.

To provide a clear picture of our performance, we take fund fees and expenses into account when we report returns.

Past performance is no guarantee of future results. All investments are subject to risk, including the possible loss of principal. Results from other time periods may differ. Active investing may have higher costs than passive investing and may underperform the broad market or comparable passive funds with similar objectives. Passive investing may lag the performance of actively managed peers as holdings are not reallocated based on changes in market conditions or outlooks on specific securities.

1The study spanned the 20 years up to the end of June 2024 for older, actively managed T. Rowe Price funds, or since inception for newer ones, and measured performance net of fees and expenses. We used the oldest share class for each fund. Each T. Rowe Price fund’s performance was measured against the equally weighted average of the returns posted by the oldest share class of the index funds in its Morningstar category (passive returns average). Fund performance was measured against the relevant passive returns average over 1‑, 3‑, 5‑, and 10‑year horizons, rolled monthly.

Additional Disclosure

©2024 Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.

Important Information

This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.

The views contained herein are those of the authors as of October 2024 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

Risks: Investing in sector funds can involve more risk and volatility compared with more diversified funds. All investments are subject to risk, including the possible loss of principal. Bond yield and share price will vary with interest rate changes. If interest rates rise significantly from current levels, bond fund total returns will decline and may even turn negative in the short term. International investments can be riskier than U.S. investments due to the adverse effects of currency exchange rates; differences in market structure and liquidity; as well as specific country, regional, and economic developments. These risks are generally greater for investments in emerging markets.

This information is not intended to reflect a current or past recommendation concerning investments, investment strategies, or account types; advice of any kind; or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Please consider your own circumstances before making an investment decision.

Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.

Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. All charts and tables are shown for illustrative purposes only.

202408-3794824

 

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