T. Rowe Price Group Inc. reported yesterday that a record amount of investor money flowed into its funds last year, raising assets to an all-time high of $235 billion and making the Baltimore mutual fund firm one of the fastest-growing in the country.
Mounting assets and investment advisory fees, as well as a rising stock market, contributed to a fourth-quarter net income of $97 million. That was up more than 40 percent from $69 million a year ago. Earnings per share of 71 cents beat Wall Street estimates by 5 cents a share, according to Thomson Financial. In the fourth quarter of 2003, the company had 53 cents of earnings per share.
Price's stock fell 12 cents, or less than 1 percent, to close at $58.76 on the Nasdaq stock market. Some speculated that investors reacted lukewarmly to the earnings report, sensing that the analysts' estimate was low considering last year's fourth-quarter market rally. Price's stock has gained more than 25 percent this year.
Assets under management swelled $45 billion in 2004, and net income increased $110 million to $337 million. The company ended the year with 75 percent invested in equity securities and the rest in bonds and money market holdings.
Price drew more investors with a number of funds that outperformed their peers, said Ken Worthington, an analyst at CIBC World Markets. The company also benefited from a squeaky-clean image while other fund companies were blemished by trading scandals.
"It's really performance and the brand name that is driving the company to higher levels. They've developed a solid reputation," said Worthington, who doesn't own Price stock.
About half of the 25 largest fund companies saw outflows of money last year as investors fled firms such as Putnam Investments and Janus Capital Group, which were among the first to be targeted by New York Attorney General Eliot Spitzer in his probe of industry abuses.
Price ranked second last year among the fastest-growing mutual fund firms with more than $50 billion in assets, according to Financial Research Corp. in Boston. American Funds, part of the Capital Group Cos. based in Los Angeles, was first.
"Our investment results are very good, and people tend to gravitate toward firms that produce good results," said George A. Roche, Price's chairman.
Roche doesn't like to single out star fund managers without mentioning others, nor does he like to focus on more rapidly expanding segments of the company, whether it be direct sales to retail customers or sales to 401(k) retirement plan providers. "We had good growth in a number of areas," Roche said.
There are practical business reasons behind Roche's reticence: He wants to emphasize to clients that the firm "covers the waterfront" with a range of fund options that are doing well, and he wants to grow each channel that distributes Price funds to protect the company in case one market lags.
Still, the company has stand-outs.
For one, Price's Capital Appreciation Fund managed by Stephen Boesel is the only U.S. equity fund to post positive returns 14 years in a row, even during the bear markets of 2000 through 2002. At Price, they call it the "other streak."
"The streak" was set last year by Bill Miller at cross-town rival Legg Mason Inc. Miller's Value Trust Fund garnered more publicity for outperforming the Standard & Poor's 500 index for 14 consecutive years.
To capitalize on investor interest, Price boosted its promotional spending in the fourth quarter to the highest level in four years. That contributed to fourth-quarter operating expenses increasing nearly $31 million from a year ago to $202 million. In 2005, advertising costs are expected to rise up to 15 percent depending on how financial markets fare.
Roche said the economy in 2005 "will not be entirely smooth sailing." He said he's concerned about the nation's trade and budget deficits and a likely pick-up in inflation.