equities  |  october 25, 2024

Our equity funds added value versus comparable passive funds

Our active management approach has benefited clients over the long term.

 

Key Insights

  • Our research shows that over the past 20 years, T. Rowe Price’s equity funds consistently outperformed comparable passive funds over various rolling periods.

  • This relative strength was especially notable over longer rolling periods.

  • The analysis includes fees and expenses to provide a clear picture of performance and highlight the value added by our active management approach.

Our research shows that over the past 20 years, T. Rowe Price’s equity funds have consistently outperformed comparable passive funds over various time frames—even after fees and expenses are taken into account. This relative strength was especially notable over longer rolling periods.

Our equity fund results were driven by our broad and deep U.S. and global research capabilities. This expertise has enabled our funds to deliver strong performance versus comparable passive funds across U.S., international, and sector equity categories.

Our equity funds added value versus comparable passive funds

Figure 1 shows that, in keeping with our focus on the long term, T. Rowe Price equity funds outperformed their relevant passive returns average over 10-year periods, rolled monthly. The active success rate exhibited by our equity funds highlights the frequency with which our funds generated better returns over this rolling time frame. (See Active success rates box below.)

This relative strength extended to shorter rolling periods as well.1 Our equity funds generated higher average annualized returns, after fees and expenses, compared with their passive returns averages over the one-, three-, and five-year time frames that we examined. The frequency of these higher returns also stood out, with our equity funds achieving active success rates of at least 55% across these rolling periods.

Active success rates

The active success rate records the percentage of rolling periods in which an actively managed T. Rowe Price fund’s returns beat its relevant passive returns average, net of fees and expenses, over a specified rolling time frame (say, 10 years). Think of this as the frequency of better returns.

Our equity funds consistently outperformed comparable passive funds*

(Fig. 1) Ten-year periods, rolled monthly, from July 1, 2004, to June 30, 2024

This combination bar and doughnut graph depicts the average annualized excess returns and the active success rates over rolling 10-year periods for the T. Rowe Price equity funds included in the study.

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).
*Analysis by T. Rowe Price. Comparable passive funds are (1) mutual funds and exchange-traded funds (ETFs) classified as “index fund” in the Morningstar Direct database and (2) in the same Morningstar category as the T. Rowe Price active funds being analyzed. The performance of the T. Rowe Price active funds was compared against the comparable passive funds using 10-year rolling monthly periods from July 1, 2004, to June 30, 2024. The analysis was conducted at the Morningstar category level, analyzing 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.
†24 funds covering 2,708 rolling 10-year periods.
‡20 funds covering 1,740 rolling 10-year periods.
§9 funds covering 925 rolling 10-year periods.

Relative strength across our U.S., international, and sector funds

T. Rowe Price U.S., international, and sector equity funds posted positive average annualized excess returns for the longest time frames in our study and generated better returns in 68% or more of these rolling 10-year periods. Across each sub‑asset class, our funds outperformed for the one-, three-, and five-year time frames and did so in a majority of the rolling periods therein.1

The T. Rowe Price difference

We’re deeply committed to seeing clients achieve their long-term goals, aiming for better returns over many market cycles.

We’ve managed investments through all kinds of markets, and our professionals average 23 years in the industry and 17 years with T. Rowe Price.2 We know that identifying risks is as important to identifying opportunities.

More than 525 of our investment professionals3 go out in the field to uncover opportunities. They study them firsthand. And use those insights to help give our clients an investment edge.

The T. Rowe Price active management approach has made a difference for clients, especially over longer time horizons. Even after fees and expenses, our equity funds delivered more return, more often, than comparable passive funds.

Excess returns

For each rolling period, the passive returns average was subtracted from each T. Rowe Price fund’s return, yielding an excess return. All returns are net of fees and expenses.

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.
2As of June 30, 2024.
3As of December 31, 2023. Investment staff includes 138 portfolio managers, 26 associate portfolio managers, 196 investment analysts, 60 associate analysts, 42 specialty analysts, 35 traders, 13 strategists, and 21 senior managers.

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: 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.

202408-3794104

 

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