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The Investment Strategy of T. Rowe Price Manager Ken Allen
Finding Undervalued Stocks
Ken Allen, the portfolio manager of the T. Rowe Price Science & Technology fund, has a investment framework that centers around analyzing cash flows to find undervalued stocks. Despite the recent boom in technology and artificial intelligence related stocks, valuation remains a critical part of Allen’s investment strategy. He emphasizes the importance of disciplined valuation, especially in tech investing: "I think especially in tech investing, valuation tends to get ignored or largely ignored."
Holdings Including FAANG Stocks
PRSCX holds all of the major FAANG names (Meta, Apple, Amazon, and Alphabet), except for Netflix, and dominant chipmakers benefiting from AI such as Nvidia and Advanced Micro Devices. Other key holdings include Microsoft, Salesforce, and German online retailer Zalando. The two biggest stocks in the portfolio were Microsoft and Alphabet, which made up nearly a fifth of the fund's portfolio as of March 31. The fund also holds a significant position in Amazon, which is now the fourth-largest holding.
Unusual Plays and New Additions
Despite recent selloffs, Allen maintains positions in stocks that he views as undervalued. This includes Zalando, which he considers “really cheap” and has the ability to take market share with its vast product selection. Other holdings include Accenture, which Allen describes as a “premier” technology services company, and Texas Instruments, which offers strong shareholder value and a low-risk track record. Recent additions to the fund include Mastercard, Apple, and Texas Instruments. Allen believes that Mastercard offers similar growth potential to other technology behemoths with less cyclicality and fewer risks.
T. Rowe Price Fund Outperformance
Throughout Allen’s tenure as the portfolio manager of PRSCX, the fund has outperformed the market, even during downturns. The fund was down more than 35% during last year’s market rout, but was still able to outperform its peers, which lost an average of 37.4%, according to Morningstar. Allen attributes his success to his unwavering focus on disciplined valuation and the careful selection of undervalued stocks: “It's really important to learn over time when things go well and especially when things don't go well. One of the things that I focus on a lot, and have for the 23 years, is thoughtfully evaluating what I can do to just get incrementally better while sticking to a process that I believe in.”
In conclusion, Ken Allen’s investing style offers valuable insights for new businesses, especially those looking to invest in the tech industry. Allen’s disciplined valuation and focus on finding undervalued stocks show that, despite the current hype surrounding technology and AI, companies should not ignore the importance of careful evaluation and selection. Furthermore, the holdings in PRSCX, which includes dominant companies like Microsoft and Amazon, offer a blueprint for diversification and choosing stable investments. Allen’s success in outperforming the market during downturns is a testament to the importance of sticking to a process and being willing to adapt and learn over time. For startup investors, it’s essential to remember the correlation between risk and reward, especially when investing in tech and high-growth industries. Ultimately, by paying attention to Allen’s investment framework, new businesses can increase their chances of successfully navigating their way through the ever-changing market and coming out on top.
