T Rowe's quarterly profit beats estimates on tailwinds from market rally

T Rowe Price's first-quarter profit beat expectations as an upswing in markets boosted its assets under management and softened the hit from outflows, it said on Friday. Some investors are also waiting for more certainty on the trajectory of interest rates before wading back into the market. But assets under management, which determines the fees managers charge, have still grown due to an increase in the value of investments.

T Rowe Price's first-quarter profit beat expectations as an upswing in markets boosted its assets under management and softened the hit from outflows, it said on Friday. Asset managers have seen money leave their funds as high interest rates boost the appeal of safe-haven assets like cash. Some investors are also waiting for more certainty on the trajectory of interest rates before wading back into the market.

But assets under management, which determines the fees managers charge, have still grown due to an increase in the value of investments. At the end of the quarter, T Rowe's AUM was $1.54 trillion, 15% higher than last year, despite $8 billion of net outflows.

"While outflows will persist in 2024, we continue to believe that there will be substantial improvement this year driven by higher sales and lower redemptions," CEO Rob Sharps said. Investment advisory fees, typically a percentage of the AUM, rose nearly 12%, to $1.55 billion.

Profit rose 36%, to $573.8 million for the three months ended March 31. Excluding one-time costs, the company earned $2.38 per share versus an expectation of $2.04 per share, according to LSEG data. Active managers like T Rowe buy and sell investments more frequently compared to passive fund managers.

Over the last several years, such companies have been ceding market share to low-cost passive funds, which can earn decent returns just by investing in the benchmark indexes or other passive vehicles, eliminating the need for active stock-picking. But higher interest rates and market volatility could usher in a new era for active investing. Analysts believe investors will have to adopt a more hands-on strategy to add value to their portfolios and manage risk, in contrast to the set-and-forget approach that has defined investing over the past decade.

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