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Sunday, May 18th, 2014
new horizons

14 0518 zPRNHX

I have heard several investment managers remark about how quickly they have given back relative performance in the last three months, relative performance that took much longer than that to build.  Given that the broad market has been holding up while most of the momentum stocks have been getting hit hard, that’s to be expected.  However, as these things usually go, the speed and magnitude of the change has taken most by surprise.

One example is displayed above, the T. Rowe Price New Horizons Fund (PRNHX).  After marching time with the S&P 500 over the first two years of this three-year chart, it vaulted upward in absolute and relative terms starting last May.  It has now given it all back.

During the time shown, the fund increased substantially in size (see the bottom panel of the chart), due to strong performance and solid cash flows.  In fact, it closed its doors to new investors as of the end of 2013.  Is its position as the largest actively managed small cap fund (according to Morningstar) making it difficult to manage?  (See recent pieces on Neuberger Berman Genesis, Fidelity Contrafund, and MainStay Marketfield that also focus on that question.)

The fund was highlighted recently in a Barron’s posting (quoting the WSJ) that it has been investing in private companies.  That can cut both ways.

For its part, Morningstar shines upon the fund, with a five-star rating, that backward-looking measure that still drives the majority of cash flows in the business.  The forward-looking analyst rating is “bronze” — a luke-warm recommendation, although its ratings for process, performance, people, parent, and price are all positives.  Whether Morningstar has a window on the inner workings is hard to tell.  As always, I encourage skepticism unless you’ve been inside the organization yourself (and even thereafter).

Investors had definitely been in a “new horizons” state of mind during 2013.  This year feels distinctly different so far.  Having seen a few of these cycles, I can tell you that the name can matter somewhat, attracting and repelling investors in turn — much like the companies that added “.com” to their names in the late 1990s only to ditch the appendage when it wasn’t sexy any more.

Were the new horizons overhyped or overplayed — or did we just overpay?  Or none of the above?  We are at an interesting juncture.  (Chart:  Bloomberg terminal.)

march of the robots

The robo-advisors are scaring traditional advisors, but the march of the robots throughout the investment landscape will be much different than we expect now.  My latest essay explores the issues.