Portfolios Using T.Rowe Price Mutual Funds

A number of our U.S. subscribers have asked us how we would implement our model target return portfolio solutions using just T. Rowe Price mutual funds. This section responds to that request.

The following table shows the T. Rowe Price Mutual Funds that correspond to the asset classes we use in our model portfolio solutions. Please note that we have tried to select the broadest based funds we could find. As we have discussed in our writing, in order to take "tilts" within these asset classes, investors may use other index or actively managed funds.

As you can see, there are a number of asset classes where T. Rowe Price doesn't offer a product (yet).

The first is foreign commercial property. In this case, we use either the Fidelity International Real Estate Fund (FIREX) or the Cohen and Steers International Realty Fund (IRFAX).

The second is exception is commodities. In this case, we prefer to use the Pimco Commodities Real Return Fund (PCRDX), which is a true index fund that tracks commodities as an asset class. An alternative to this is the Oppenheimer Real Asset Fund (QRAAX); this fund places relatively more weight on energy commodities than the PIMCO fund (for more on this, see the section on commodities on our website).

Another asset class which lacks a T. Rowe fund is timber. To track the performance of our model portfolios, we use a market cap weighted mix of timber real estate investment trusts: 70% Plum Creek Timber (PCL) and 30% Rayonier (RYN).

T. Rowe also thus far lacks a product offering in equity market neutral (our proxy for uncorrelated alpha strategies). In its place, we are using an equally weighted mix of five mutual funds that use “hedge fund-like” strategies. These include Hussman Strategic Growth (HSGFX), Analytic Global Long/Short (ANGLX), James Market Neutral (JAMNX), Rydex Absolute Return Strategies (RYMXQ), and JP Morgan Market Neutral (JMNAX).

The last asset class that is included in some of our model portfolios is U.S. equity market volatility, as tracked by the VIX index. Thus far, the only way to invest in this asset class is via futures contracts that track the VIX. Unfortunately, these are too complicated for most investors. We hope that at some point over the next two years, a futures-based index fund (similar to commodity index funds) becomes available in this asset class.

*Note that these are funds available to average investors. Those with more to invest may qualify for other share classes.

Update: January, 2006