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Fund Watch

For T. Rowe Price Equity Income, It's Good Riddance to 2011

Its fund manager continues to look for large, high-quality, dividend-paying companies with growth potential.

Brian Rogers, manager of T. Rowe Price Equity Income (symbol PRFDX), says 2011 was "absolutely miserable."

Truth be told, the fund was far from disastrous in 2011: Its 0.7% loss essentially equaled the average decline for funds that focus on the stocks of large, undervalued companies. But overall, it was ho-hum for Rogers, who has produced a respectable annualized return of 6.5% at Equity Income over the past 15 years, a figure that beats Standard & Poor's 500-stock index by nearly 1 full percentage point per year (results are through January 25).

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Rogers blames last year’s wacky stock market -- virtually unchanged, despite extreme day-to-day volatility -- on problems in Europe and Washington, D.C. "Corporate earnings are good, but investors were concerned about Europe, and they’ve totally lost confidence in Washington -- between that comical debate over the debt ceiling and the downgrade of our debt rating in August and the incomprehensible behavior of the supercommittee in November," says Rogers. "So there’s not a lot there that bolsters one’s confidence."


Rogers, who became chairman of T. Rowe Price in 2007, admits that he has a full plate of job responsibilities, but he says corporate responsibilities haven't hindered his ability to manage Equity Income. Price is run like an old-fashioned partnership, he says. "There's a division of labor, and that's one reason I can continue to manage the fund." And the fund's growing asset base -- it is now $21.2 billion in size -- hasn't been an "impediment" to performance either, he says. "Look at the top holdings. We don’t have liquidity issues because we’re investing in large-cap companies."

One of those holdings, JPMorgan Chase (JPM), was among the portfolio's worst performers last year, losing nearly 20% (including dividends). "A year ago, if I had told you that JP Morgan would be a worse investment in 2011 than it was in 2008, you’d be surprised by that," says Rogers, who adds, "A lot of my investments have been really struggling." But JPMorgan hasn't been struggling lately. The stock, which closed at $37.49, has jumped 33% since hitting a 52-week low in late November.

Meanwhile, Rogers continues to look for large, high-quality, dividend-paying companies with growth potential. He has filled the Equity Income portfolio with 120 stocks, nearly all of which pay dividends. "Dividends are important to us, but they’re not the only thing," says Rogers. In the third quarter of 2011, for instance, he picked up shares of Yahoo (YHOO), the struggling Internet media company, which does not pay a dividend. "Past performance is no predictor, and that holds as much when one is down as when one is up," says Rogers. "I'm the dark horse for the turnaround."