Stephen Boesel is staking the T. Rowe Price Capital Appreciation Fund's record 14-year winning streak on technology stocks such as Texas...
Stephen Boesel is staking the T. Rowe Price Capital Appreciation Fund’s record 14-year winning streak on technology stocks such as Texas Instruments, Intel and Microsoft.
“They all have good balance sheets, the business fundamentals seem to be turning, and they seem to be very shareholder friendly,” said Boesel from his office in Baltimore.
“It’s honestly not a lot of elegant thinking.”
Boesel more than doubled his holdings of computer-related stocks in the past year, lured by rising dividends and the lowest share prices relative to earnings since 1997. The $5.8 billion fund, which invests in equities, U.S. Treasury bonds and corporate debt, isn’t relying on fixed payments from bonds to cushion returns.
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The fund was up 0.3 percent this year as of June 8, as the manager missed a rally in the government bond market after investing only 1 percent of the fund’s assets in Treasury notes.
The fund has risen at an average annual rate of 13 percent since 1990, the last year it declined.
The benchmark Standard & Poor’s 500 Index climbed at an average annual rate of 11.6 percent in the same period after posting declines in 1994 and 2000 through 2002.
No other fund that invests in equities, or both stocks and bonds, has gone as long as the T. Rowe Price fund without reporting a loss, according to Lipper, an industry research firm owned by Reuters Group.
Technology stocks should rally after trailing the S&P 500 in four of the past five years, as investors shift money to shares where price-to-earnings multiples are relatively low, Boesel said.
“The minute technology starts to do obviously better, money will start flowing to this area,” Boesel said. “It happens every time.”
Richard Howard, 58, who managed the fund from 1989 to 2001, said his focus on valuations helped build the fund’s winning streak.
“I am addicted to the value approach, and Stephen is focused in that direction as well,” Howard said. “I was never an asset allocator, but a security selector. We always looked at each security and made it stand on its own.”
Boesel’s 1 percent holding in government bonds at the end of March was the smallest since 1991, and he had 19 percent in cash. About 65 percent of the fund’s assets were in stocks, the most since 1990, and 15 percent was invested in convertible bonds.
“I thought the combination of the dollar falling, the economy being strong and some inflation concerns on the horizon would lead to a sloppy bond market,” Boesel said. “All of that has not happened, but I am still not inclined to look at Treasuries. We are more interested in convertible bonds.”
Boesel’s bearishness on Treasuries has hurt returns. A Merrill Lynch index tracking 10-year Treasury notes has increased 9.1 percent this year, including income from interest payments, while the S&P 500 has declined 1.4 percent.
Still, the Capital Appreciation fund’s streak remains.
T. Rowe Price’s Capital Appreciation fund rose 22 percent in 2000, 10 percent in 2001 and 0.5 percent in 2002.
“We’ve been through a period where we really stress-tested our approach, and the result was that it really works,” Boesel said. “I don’t think there’s any magic to it. It’s just the old blocking and tackling.”