The acronym TMT took a beating nearly than a decade ago, when a number of telecom services (T), media (M), and the information technology stocks (T) declined sharply. Since then many diversified mutual fund managers have focused on these now recovered industries and a small number of funds have narrowed their sights to just the TMT space with success.
One such fund is
T. Rowe Price Media & Telecommunications Fund Ticker:(PRMTX), which climbed 69% in 2009 and was up 26% year to date through December 10, easily outpacing both its telecommunications fund peers and the average domestic equity mutual fund in both years. In addition, the fund's three-, five- and 10-year track records are in the top quartile (among peers and domestic equity funds) as well, but this includes time when a prior manager was at the helm.
S&P Equity Research has a five-star ranking on the fund, viewing positively the fund's relatively high Sharpe ratio, below-average net expense ratio, and more modest turnover versus peers. S&P Mutual Fund ranking methodology, a twist on the industry standard, relies on multiple inputs beyond a fund's performance track record and includes holdings-level analysis leveraging S&P's award winning stock recommendations.
Dan Martino, who assumed lead management of the PRMTX in 2009 and has covered telecom stocks for
T. Rowe Price since 2006, highlighted to S&P in early December 2010 a number of telecom, media, and technology holdings in the fund that are currently viewed favorably by S&P Equity Research analysts as well. Similar to S&P, Martino sees wireless tower companies as having a recurring revenue stream, high barriers to entry, and being positioned to benefit from industry demand for network capacity to meet rapidly growing wireless data services. As of September 2010, the fund's largest position was in S&P strong buy-recommended Crown Castle International and Martino noted that tower peer SBA Communications, an S&P buy recommendation, was also in the portfolio.
One of the changes Martino made to the fund in 2009 upon assuming the helm was to increase exposure to cable companies such as Cablevision and Comcast, which are S&P buy and hold recommended stocks, respectively. In his view at that time, these cable providers had product advantages over wireline competitors in much of their operating territory, were focused on returning cash to shareholders, and were undervalued. While these stocks have risen since then,
T. Rowe Price still sees them as appealing.
Within the media space, Martino is constructive on such companies with strong content that he and his team believe can translate well outside the United States to benefit from improving consumer demand globally. In particular, he noted ESPN from Disney, and the Discovery Channel and TLC from Discovery Communications. S&P has a buy and strong buy recommendation, respectively, on these stocks.
Lastly, the information technology portion of the portfolio includes companies that management believes have strong intellectual property (IP), which makes them more “durable” than peers. Martino described Qualcomm's wireless ecosystem IP and Apple's software and design IP as particularly appealing to
T. Rowe Price's analysts. Both stocks are also considered undervalued according to S&P analysts.
Martino said he views his role as bringing together the best ideas from the 10 global analysts at
T. Rowe Price, himself included, who cover the aforementioned industries and others to form the approximately 65-stock portfolio. The resulting fund, which as of September 2010 had 80% of assets invested in U.S. companies and the remainder spread out in Asia, Europe and Latin America, was relatively concentrated with 45% of assets in top 10 holdings. PRMTX has a minimum investment of $2,500 for new investors, a relatively low net expense ratio of 0.90% and does not charge a front-end sales load.
T Rowe Price Media & Telecommunications Fund ranks as an S&P four star fund not only because of its strong risk-adjusted track record and its below-average expense ratio, but also based on S&P's proprietary holdings-level analysis. But as with all investments, S&P believes that investors should look to make selections that are suitable for their objectives and risk profiles.
