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A Fine Balanced Fund Choice From T. Rowe Price

Silver-rated T. Rowe Price Retirement Balanced benefits from multiple layers of proven managers and low fees.

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The following is our latest Fund Analyst Report for T. Rowe Price Retirement Balanced (TRRIX). Morningstar Premium Members have access to full analyst reports such as this for more than 1,000 of the largest and best mutual funds. Not a Premium Member? Gain full access to our analyst reports and advanced tools immediately when you try Morningstar Premium free for 14 days. 

A large asset-allocation team, solid underlying managers, and low fees solidify T. Rowe Price Retirement Balanced's Morningstar Analyst Rating of Silver.

This fund served as the landing point in the firm's Retirement target-date series from 2002 until 2004, when the glide path stopped derisking at 40% in equities 10 years past retirement. In 2004, the firm revisited the glide path and decided to continue trimming equities until 30 years past retirement; at that point, the stock weighting levels off at 20%. As a result, this fund was eventually decoupled from the series.

The fund maintains a static 40%/60% stock/bond mix and is designed to serve as an investor's holding throughout retirement. Given its elevated risk profile for participants well past retirement relative to the target-date series, it holds a more conservative bond portfolio by stashing 30% of assets in an inflation-linked bond fund. Otherwise, the underlying holdings largely match what is used in the target-date series.

Deep resources support the fund's approach. T. Rowe Price's asset-allocation team has grown to about 60 investment professionals, making it one of the larger multi-asset teams in the industry. Moreover, 11 of the 19 underlying funds are Morningstar Medalists, meaning we expect them to outpace competitors and benchmarks over the long haul. That said, Morningstar analysts downgraded  T. Rowe Price New Income (PRCIX) (15% of assets) to Neutral from Bronze in October 2018 because several of the firm's fixed-income leaders, including the fund's longtime lead skipper Dan Shackelford, will depart in 2018 and 2019. The lineup overall remains attractive.

The fund has turned in strong results, thanks largely to its supporting managers. It has outpaced its customized benchmark and average allocation--30% to 50% equity Morningstar Category peer over the trailing 10 years through October 2018 on both an absolute- and risk-adjusted basis. Low fees provide a consistent leg-up versus the competition. Overall, this fund remains a fine pick.

Process Pillar: Positive | Leo Acheson, CFA 11/14/2018 
This fund benefits from a consistent approach, earning it a Positive Process rating. T. Rowe Price designed this fund in 2002 for investors who want a static asset-allocation throughout retirement. The fund targets a 40%/60% stock/bond split, and it typically does not stray far from this mix. However, management can tactically adjust its exposures by up to 5 percentage points to try to boost returns. T. Rowe Price's asset-allocation committee determines these tilts, drawing upon the firm's fundamental research and years of experience to make relative valuation decisions, forecasting over a six- to 18-month time horizon.

Nineteen underlying T. Rowe Price funds fill out the allocations. In order to maintain purchasing power for investors, the fund keeps a healthy 30% stake in a short-duration inflation-linked bond fund. A core bond fund anchors the remaining fixed-income exposure. More-specialized funds, such as an emerging-markets debt strategy and a high-yield bond fund, are also used. In early 2018, management added small stakes in four new fixed-income funds--a floating-rate fund, a nontraditional bond fund, a long-term Treasury fund, and a currency-hedged international-bond fund. The team expects these changes to boost risk-adjusted results in the long haul, and it has sound research backing up that expectation.

The equity lineup includes 10 T. Rowe Price funds that span market caps, investment styles, and geographic regions.  T. Rowe Price Equity Index 500 (PREIX) represents half of the stock sleeve. While this strategy's 0.21% expense ratio is low compared with actively managed large-cap funds, it is overpriced versus other S&P 500 funds.

Nonetheless, the underlying T. Rowe Price managers are collectively a strong group. Eleven of the underlying funds receive medals from us, meaning we expect them to outperform peers and indexes over a full market cycle. In aggregate, the Morningstar Medalists account for about 45% of the fund's assets currently. That said, Morningstar analysts downgraded T. Rowe Price New Income (15% of assets) to Neutral from Bronze in October 2018 because several of the firm's fixed-income leaders, including the fund's longtime lead skipper Dan Shackelford, will depart in 2018 and 2019. That is not a step in the right direction, but the strength of the other managers helps offset concerns. T. Rowe Price Limited Duration Inflation Focused Bond (TRBFX) assumes 30% of assets; Morningstar analysts do not rate that fund, though it is a relatively straightforward inflation-protected strategy.

Historically, the fund's broad allocations have not strayed too far from its strategic allocation of 40% stocks/60% bonds.

Performance Pillar: Positive | Leo Acheson, CFA 11/14/2018
The fund has amassed a strong long-term record, earning it a Positive Performance Pillar rating. During the past 10 years through September 2018, it gained 6.9% annualized, outpacing its custom benchmark and typical 30% to 50%--equity allocation Morningstar Category peer by about 50 basis points. (The blended benchmark has evolved over time, though it currently consists of 30% Barclays U.S. Aggregate Bond Index, 30% U.S. Treasury Inflation Protected Securities 1-5 year Index, 12% MSCI ACWI ex USA Index, and 28% Russell 3000 Index.) The fund has had similar volatility relative to its typical peer and bogy, so its risk-adjusted results also look strong.

Attribution provided by T. Rowe Price shows that security selection by the underlying T. Rowe Price managers explains most of the outperformance. Tactical asset-allocation tilts have had a neutral impact during the past decade.

Relative to peers, much of the fund's strength has come during tumultuous periods. It landed in the top third of its category during 2008 and 2015, and it also held its own during the summer of 2011, which is impressive given the fund's modestly above-average international-equity stake relative to the category norm. The fund has also turned in respectable results during rising markets. In fact, it has avoided the bottom third of its peer group in every calendar year since its February 2002 inception.

People Pillar: Positive | Leo Acheson, CFA 11/14/2018
Jerome Clark, who joined the firm in 1992, has managed this fund and the firm's target-date series since their 2002 inception. Wyatt Lee, a longtime associate to Clark, officially joined the manager roster in August 2015. A deep and growing asset-allocation team supports them. The group currently stands at about 60 investment professionals, reflecting a strong commitment to the asset-allocation space.

Former asset-allocation committee head Richard Whitney retired at the end of 2016, which led to changes. Charles Shriver and David Giroux replaced Whitney as co-chairs of T. Rowe Price’s now 14-member asset-allocation committee in October 2016. The committee guides the fund's modest tactical decisions and is composed of leaders from the firm’s equity and fixed-income teams. Sebastien Page, a PIMCO transplant, replaced Whitney as the sole head of asset-allocation strategies and broadly oversees the group.

The underlying fund managers used in the series are also a sound and well-respected bunch. Ten of the 13 underlying funds that we cover receive Positive People ratings. With multiple layers of quality managers, the series earns a Positive People rating.

Clark and Wyatt both invest more than $1 million in the target-date series, which uses the same building blocks as this fund, helping align their interests with shareholders'.

Parent Pillar: Positive | 10/01/2018
T. Rowe Price remains best-in-class, earning a Positive Parent rating. The firm's success is rooted in its fundamental approach to active management and deep analyst bench. Investors benefit from managers' generally long tenures at the firm, well-planned manager transitions, reasonable costs, and attention to capacity. Many top executives, including CEO Bill Stromberg, rose from the analyst ranks, which helps keep a focus on investors at the forefront, even as the firm expands its distribution footprint outside the United States and bolsters its technology resources. The investment side has received resources, too. The multi-asset team has grown in size, reflecting its importance to the firm's future beyond the esteemed target-date lineup. Despite headwinds facing active managers, T. Rowe remains a powerhouse within U.S. and international equities. Fixed income is an area to watch. Several long-tenured managers have recently retired or will do so soon. Sound succession planning has smoothed the transitions, but the firm needs to ensure the bench remains deep. While high-yield and municipal bonds remain bright spots, the fixed-income team has not yet shown sustainable success in inching beyond its conservative bottom-up approach at some core strategies. Plus, the firm's foray into alternatives is unproven. Overall, though, T. Rowe Price retains the sensible and investor-focused culture that has long driven its success.

Price Pillar: Positive | Leo Acheson, CFA 11/14/2018
The fee on the no-load retail share class, which holds about 80% of the fund's assets, fell by 4 basis points since last year to 0.52%, which ranks in the lowest quintile of its peer group. The R share class also charges low fees, but the Advisor share class has about an average price tag. The fund's fees match those of the underlying strategies, meaning T. Rowe Price doesn't charge an additional fee for constructing and managing the overall portfolio. The fund receives a Positive Price rating.

T. Rowe Price introduced an Institutional share class of the fund in September 2015. The new share class has an expense ratio of 0.38% and minimum investment of $1 million, furthering the firm’s commitment to provide low-cost offerings.

Leo Acheson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.