T. Rowe Price Stock Drop Correlates With ETF Inflows

| About: T. Rowe (TROW)

Summary

I started my second foray by purchasing my initial batch of shares around $69 with the sentiment that it was beaten down.

The overall mutual fund industry is facing some turmoil as only 10% of all actively managed domestic equity funds beat the S&P 500 over the most recent five year period.

With the third quarter having just recently ended investors pushed nearly $92B into ETFs in aggregate from other investment vehicles.

This is my second foray into T. Rowe Price (NASDAQ:TROW) for my Portfolio of 12 and each time I purchased the name for the dividend portion of the portfolio because I felt that it was undervalued at the moment. The first time around I closed my position with an 8.5% gain, or 45% on an annualized basis back when it was trading at around $76. I started my second foray by purchasing my initial batch of shares around $69 with the sentiment that it was beaten down and offered additional value considering I was buying back at a price lower than what I sold it at previously. But I have been wrong as the price of the fund manager has continued to drop to the now current $66.

The drop in price of the stock may be attributed to the overall mutual fund industry facing some turmoil as only 10% of all actively managed domestic equity funds beat the S&P 500 over the most recent five year period. Because of this poor showing investors have removed nearly $422B from the mutual fund industry to the ETF industry where the fees are much less. After all, why would anyone want to spend more money on an investment to return less, or even lose on their capital? I felt that way a couple years ago when I made the decision to yank my IRA from my financial advisor who was earning me less than the S&P 500. Now my IRA has returned me 23% this year alone and I'm much happier, so it doesn't surprise me that investors are looking for less costly investment vehicles for better performance than mutual funds. Amid this shift in sentiment though, the managers at T. Rowe saw an inflow of funds during the month of August with what appeared to be an outflow of $25.4B for the overall industry during the month.

With the third quarter having just recently ended investors pushed nearly $92B into ETFs in aggregate from other investment vehicles. This puts assets under management for ETFs at around $2.4T, which benefits the likes of BlackRock and proves to be an Achilles heel for companies such as T. Rowe Price. After the third quarter push into ETFs it puts nearly $150B into the investment vehicle for the year which explains why T. Rowe's stock has been trading down recently.

I actually initiated my position in T. Rowe Price in late August and have been pretty upset with the purchase thus far. So far, I'm down 26% on an annualized basis, but I am purchasing shares as long as they are below $68, because I believe that is where it offers additional value. I've selected $68 because it is the average purchase price of my current shares. This is a dividend growth stock that has been increasing the dividend for the past thirty years. With earnings growth estimates expected to increase by 14.8% for next year and operating cash flows which cover the dividend I am not too worried about the way the company is operating right now. However, the company should be thinking from a strategic perspective how to capture that money which is flowing into ETFs by looking towards the next big idea.

I swapped out of V.F. Corp. (NYSE:VFC) for T. Rowe Price during the 2016 third quarter portfolio change-out because I ended up turning a profit in the name (5%, or 24% annualized) and wanted to lock in those profits. Since the swap, I have conserved some losses, as T. Rowe has outperformed the V.F. Corp. since the swap. For now, here is a chart to compare how T. Rowe and V.F. Corp. have done against each other and the S&P 500 since I swapped the names.

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When it is all said and done, it matters what the stock has done in an investor's portfolio at the end of the day. For me, T. Rowe is one of my medium-sized positions and has not been doing well, as I'm down 4.1% on the name, while the position occupies roughly 10.9% of my portfolio. I will continue to make purchases in the name as long as it is below $68. I own the stock for the dividend portion of my portfolio, and I will continue to hold onto the stock for now. My portfolio is up 6% since inception, while the S&P 500 is up 2.6%. Below is a quick glance at my portfolio and how each position is performing. Thanks for reading, and I look forward to your comments.

Company

Ticker

% Change incl. DIV

% of Portfolio

The Priceline Group Inc.

(NASDAQ:PCLN)

26.23%

6.14%

Southwest Airlines Co.

(NYSE:LUV)

12.99%

11.92%

Electronic Arts Inc.

(NASDAQ:EA)

9.17%

4.00%

KLA-Tencor Corporation

(NASDAQ:KLAC)

1.74%

5.30%

Target Corp.

(NYSE:TGT)

-0.48%

7.75%

AbbVie Inc.

(NYSE:ABBV)

-0.96%

3.21%

T. Row Price Group, Inc.

-4.12%

10.89%

Diageo plc

(NYSE:DEO)

-5.86%

4.21%

Signet Jewelers Limited

(NYSE:SIG)

-9.57%

11.62%

Gilead Sciences Inc.

(NASDAQ:GILD)

-14.08%

15.68%

Silver Wheaton Corp.

(NYSE:SLW)

-14.89%

3.80%

SIG OCT 21 2016 85.00 CALL (Open)

-84.52%

0.20%

DEO OCT 21 2016 120.00 CALL (Open)

-95.36%

0.02%

Cash

$

15.26%

Click to enlarge

Disclaimer: This article is in no way a recommendation to buy or sell any stock mentioned. This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade, and happy investing!

Disclosure: I am/we are long TROW.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.