FYI: Copy & Paste 6/7/14: Beverly Goodman; Barron's
Regards,
Ted
Last week, Brian Rogers, the longtime and highly successful manager of T. Rowe Price Equity Income (ticker: PRFDX), announced that he'll be stepping down in October 2015, on his 30th anniversary. He'll remain the firm's chairman and chief investment officer.
Just to reiterate: He'll relinquish his money management duties only, 16 months from now. "About half the people I've spoken to thought I just got fired, and about 30% thought I was leaving this fall," Rogers says with a chuckle.
But really, that kind of notice is what we should expect, especially on such high-profile funds as the $30 billion Equity Income, which gained 11.3% annualized from its 1985 inception through May, according to Morningstar, narrowly besting the S&P 500 and the Russell 1000 Value, but with much less volatility. "It reassures investors when there's a good succession plan in place," says Morningstar analyst Katie Reichart.
Rogers is reducing his responsibilities for personal reasons. "Around the holidays, I was reflecting on the fact that in 2015 I'll have been managing the fund for 30 years, and that I'd also be turning 60," Rogers says. "And in the very back of my mind was Jack Laporte." Laporte had been with the firm since 1976 and managed T. Rowe Price New Horizons (PRNHX), the small-company growth fund that quintupled in size under his 22 years of management. He retired at the end of 2012, and died in August 2013. He was 68.
John Linehan, 49, will replace Rogers on Equity Income -- but not just yet. "The next 12 months will look a lot like the last 12 months," Rogers says. Linehan, who ran T. Rowe Price Value (TRVLX) from 2003 to 2009 with much success, has been on the advisory council for Equity Income since 1999, and co-manages a separate account with Rogers. The two already talk daily, Rogers says, and the fund won't look very different under his management. In the meantime, Linehan will "spend a fair amount of time getting to know our [institutional] clients," Rogers says.
MANAGER CHANGES AREN'T necessarily good or bad, but they do need to be handled thoughtfully and transparently. It wasn't much of a surprise when legendary investor Bill Miller announced he was scaling back in the midst of a disastrous performance in 2010, after more than 15 years of outstanding returns. Sam Peters was named co-manager of what was then Legg Mason Value Trust; it has since been rebranded as ClearBridge Value (LMVTX). "Bill started talking to me at least a year before," Peters says. "When I was named co-manager, it was a real 'co-'; we both had veto power right away." The fund was in need of a breath of fresh air (assets had fallen to $4 billion from a peak of $21 billion in 2007), and Peters helped make some pretty big changes, such as opting for bigger companies and fewer names in the portfolio, and increasing allocation to the health-care sector and decreasing its stake in financial companies. The fund's active share, a measure of how much a manager deviates from the benchmark, rose from 60% to 80%. "We were very deliberate in not surprising people," Peters says. "A lot of our clients already knew me, and I got to know the others." He also had to field questions as to how he'd differ from the legendary Miller—some wanted big changes, others didn't. "We wanted people to know there would definitely be some change, but nothing dramatic." Peters became sole manager in May 2012; in 2013 the fund beat 92% of its peers.
NOT ALL HIGH-PROFILE FUNDS telegraph their changes so effectively. Fidelity Magellan (FMAGX) still seems to be reeling from Peter Lynch's departure in 1990. Lynch's successor, Morris Smith, lasted just two years. Bob Stansky, whose nine-year tenure is the longest since Lynch, presided over the fund's rise to peak assets of more than $100 billion in the late '90s, and its fall to $52 billion by the time he left in 2005. Harry Lange also struggled with performance and outflows. Current manager Jeff Feingold has improved performance in his less than three years on the job; Magellan now has $16 billion in assets. "If someone's not performing, Fidelity isn't shy about removing them," Reichart says.
Brian Hogan, president of Fidelity's equity group, which oversees $750 billion, points to the planning around the firm's most impressive funds: Will Danoff's $108 billion Fidelity Contrafund (FCNTX) and Joel Tillinghast's $47 billion Fidelity Low-Priced Stock (FLPSX). "We have surrounded Joel and Will with like-minded individuals," Hogan says. Danoff just hand-picked John Roth, manager of Fidelity New Millenium (FMILX) to co-manage Danoff's smaller fund, the $27 billion Fidelity Advisor New Insights (FNIAX); Roth is widely thought to be Danoff's eventual successor on Contra. Tillinghast took a three-month sabbatical in 2011, and the team created to manage in his absence then is still in place. Neither is likely to leave soon.
The average tenure of a T. Rowe manager is 10 years, compared to the industry average of five, but the firm has lost some impressive talent recently, including Kris Jenner, who took others from his team at T. Rowe Price Health Sciences (PRHSX) to start a hedge fund in 2013. Two other top managers -- Joe Milano and Rob Bartolo -- left the company, and the mutual fund business, soon after. "There were a handful of departures we weren't happy with," Rogers acknowledges. "But if you're going to do what they did, doing it in your 40s makes sense."
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