The ETF threat
Part of what has tempered T. Rowe Price’s success has been the rise of exchange-traded funds. Mutual-fund rivals Fidelity and Vanguard have embraced ETFs, with Vanguard steadily growing its own line of index ETFs to go alongside its index mutual fund offerings, while Fidelity entered into a partnership with BlackRock, Inc. (NYSE:BLK) to offer its iShares line of ETFs at no commission to Fidelity customers. BlackRock, Inc. (NYSE:BLK) in particular has vaulted to top status in the ETF industry, and although the fees that it collects from ETF assets are less on a percentage basis than what T. Rowe Price earns from active management, BlackRock’s asset advantage makes it hugely profitable.
Some of T. Rowe Price’s competitors have made moves toward offering actively managed ETFs. For instance, earlier this year, Eaton Vance Corp (NYSE:EV) filed with the SEC to create a new type of ETF, limiting the amount of disclosure the company would have to make about its holdings. So far, actively managed ETF have largely been limited to the bond arena, where requirements for daily disclosure of holdings don’t represent as much of a loss of proprietary information. For now, T. Rowe Price has said it has no immediate plans to offer active ETFs.
How T. Rowe Price can win
Typically, market downturns are negative for asset managers, but this one represents an opportunity for T. Rowe Price. The ETF movement has taught investors that they’re better off paying low fees to handle their own investments, and ETFs work particularly well during sharply rising bull markets. When stocks fall, though, investors see more value in professional management. With solutions like its target retirement funds, 529 college savings plans, and other fully managed options, T. Rowe Price has the chance to regain some of its lost luster and capture more assets.
With a long history of steadily rising dividend payments, T. Rowe Price stock justifies its somewhat lofty valuation. But future gains for the shares depend on the company’s ability to follow through on poaching business from index ETFs. The short-term pain from a bear market could actually lead to long-term gains for T. Rowe Price.
The article T. Rowe Price Stock Could Benefit From Market Turmoil originally appeared on Fool.com.
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