T. Rowe Price Retirement Income Fund

Fund Overview

Retirement income funds are known for more conservative investing strategies, but this fund bucks that trend and uses a comparatively more aggressive strategy than its peers. While the category average for stock holdings hovers around 30 percent, this fund aims to invest about 40 percent in equity funds.

As of April 04, 2012, the fund has assets totaling almost $2.62 billion invested in 17 different holdings. Its portfolio consists of a variety of underlying T. Rowe Price stock and bond funds.

In July 2010, T.Rowe Price announced plans to broaden the portfolio’s diversification and address inflation risk. Manager Jerome Clark added the T. Rowe Price Real Assets Fund to increase exposure to real estate and natural resources—industries he says generally perform better in periods of above-average inflation. “When you get to a certain level of diversification, it’s really challenging to change the overall characteristics of the fund, but what we’ve found is that introducing these real assets—natural resources, metals and mining, global infrastructure—we can dampen volatility,” Clark says.

In another effort to hedge against inflation, Clark has allocated about 30 percent of the fund’s fixed-income assets to TIPS and other inflation-linked securities. Additionally, Clark beefed up the fund’s holdings in money market funds to better manage new and existing cash flows. Although the fund’s performance has suffered recently due to stakes in high-yield bonds, according to the fund’s quarterly commentary, management will maintain its focus on high-yield bonds “given a gradually improving economy and expectations for reduced defaults.” The fund has returned 4.57 percent over the past year and 14.30 percent over the past three years.

Since launching in 2002, the fund has slightly underperformed its category and benchmark, but not by much. The fund returned 4.30 percent over the past five years.

Investment Strategy

Intended for investors already in retirement, the T. Rowe Price Retirement Income Fund seeks to provide a steady stream of income and some capital appreciation by investing in a mix of T. Rowe Price bond, stock, and money market funds. The fund tends to keep a fairly static distribution of assets with about 60 percent in bond funds and 40 percent in stock funds, a slightly higher equity allocation than the norm. “That’s kind of a retirement philosophy at T. Rowe Price for both our dated funds and our income funds,” says fund manager Jerome Clark. “Over these long retirement periods, to combat longevity risk and inflation risk (combined we call it shortfall risk) [investors] need to have adequate exposure to equities even in retirement.”

Role in Portfolio

Morningstar calls this fund a “core” investment.

Fund Opinion

The fund appears on the 2011 Money 70 list of recommended mutual and exchange-traded funds.

Money 70

In the annual Lipper/Barron’s Fund Families Survey of 2010, T. Rowe Price fund family ranks 12 out of 57 fund families surveyed.

Lipper 2011-04-06

This fund received the Silver award for the Blended Fund of Funds category in Standard & Poor’s 2010 Mutual Fund Excellence Awards. 

Standard & Poor's 2010-11-01

Management

Jerome Clark, a vice president at T. Rowe Price, oversees the firm’s retirement-income series. He joined the firm in 1992 and also manages T. Rowe Price’s College Savings Plan and institutional asset allocation products.

Morningstar gives this fund a stewardship rating of A on a scale of A to F. “On most fronts, this fund is strong, benefiting from a top-rate investment culture, low fees, a manager with skin in the game, and a spotless regulatory history. With a more-independent board of directors, it would score even more highly.”

Morningstar 2011-02-01

Performance

The fund has returned 4.57 percent over the past year, 14.30 percent over the past three years and 4.30 percent over the past five years.

Hypothetical Growth of $10,000

Updated 03.31.2012

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Holdings

The fund holds a variety of underlying T. Rowe Price stock and bond funds. It is most heavily invested in the financial services industry, but also has significant interests in consumer goods, information technology, and industrial materials.

Asset Allocation

	% Long	% Short	% Net
Cash	7.07	0.01	7.06
Stocks	30.34	0.0	30.34
Bonds	41.83	0.1	41.73
Other	0.64	0.09	0.55
Foreign Bonds	8.98	0.13	8.85
Foreign Stocks	11.38	0.0	11.38
Convertible	0.01	0.0	0.01
Preferred	0.07	0.0	0.07

Updated 12.31.2011

Top Holdings

Performance as of 03.31.2012

Portfolio as of 12.31.2011

	% Net Assets
T. Rowe Price Inflation Focused Bond	29.67
T. Rowe Price Equity Index 500	24.91
T. Rowe Price New Income	17.49
T. Rowe Price High-Yield	3.8
T. Rowe Price Emerging Markets Bond	3.29

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Fees

T. Rowe Price Retirement Income Fund has an expense ratio of 0.00 percent.

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Risk

As with other retirement income products, this fund is not a guaranteed source of income.

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