T.

Rowe Price Corporate Income ( PRPIX ) | 2013 Trowe Analyst Report

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T. Rowe Price Corporate Income PRPIX

Analyst Report

Seen in the right light, this fund stands out in a good way.
by Shannon Kirwin 12/12/2012

Morningstar's Take

There's more to T. Rowe Price Corporate Income than its star rating implies.

Morningstar Analyst Ratin

Morningstar Pillars

This fund is not like many others in the long-term bond category. Manager Dave Tiberii almost
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Process Performance People Parent Price

exclusively buys corporate bonds, while many category peers hold large stakes in munis or Treasuries. The fund also has a lighter share of interest-rate sensitivity--its duration was 6.9 years in September, compared with the 7.6 year median for the category. That can blunt the fund's volatility relative to category peers, but it also has meant underperforming its ultra-long rivals over the past decade, when yields have largely fallen.

Discuss See what other investors are saying about PRPIX

Morningstar Analyst Rating Morningstar evaluates mutual fun analysts believe lead to funds tha long term on a risk-adjusted basi Analyst Rating Spectrum

That said, compared with the set of intermediate- to long-term funds that invest primarily in corporate issues, the fund's 6.4% annualized return under Tiberii's tenure beats two thirds of the group. On the other hand, it's also among the most volatile of that subset; it lost 10.0% in 2008, trailing two thirds of those rivals, but then came roaring back with a 22.1% return in 2009's rally, landing in the group's top third.
Role in Portfolio Supporting Player

Fund Performance
Those relatively dramatic ups and downs are partly due to the fund's duration, which--while relatively muted versus the long-term category average--is often a year or so longer than its typical corporate peer's. It also carries more credit risk; recently, more than two thirds of its assets were invested in BBB rated issues versus just 45% for its typical corporate-focused rival. It held another 9% in high-yield bonds, slightly more than the group's median. That penchant for mid- and low-quality credits reflects a long-standing bias on Tiberii's part. Thanks to T. Rowe's large stable of 15 corporate and 12 high-yield analysts, he's confident that he can sniff out undervalued companies with improving fundamentals. Earlier this year, for example, he added to positions in BBB rated advertising companies that he expected to benefit as American corporations' earnings, and marketing budgets, increase.
Year

YTD 2012 2011 2010 2009

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T. Rowe Price Corporate Income ( PRPIX ) | 2013 Trowe Analyst Report

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For investors who can stomach a little extra volatility, this is a solid option for corporate bond exposure. Its 0.64% price tag is decent, too. Process Pillar: Positive

Manager Dave Tiberii keeps the majority of this fund's assets in investment-grade corporate bonds, though he will hold up to 15% in high-yield fare. Within the investment-grade stake, the fund's exposure to BBB rated issues is often above average. Tiberii also invests another 5% of assets in noncorporate sectors, including foreign sovereign debt, asset-backed securities, government mortgages and commercial mortgage-backed securities. He relies heavily on the fundamental research of T. Rowe's credit analyst teams, but also adjusts the fund's exposure to various sectors depending on his outlook. He generally keeps the fund's duration within half a year of its benchmark, the Barclays US Corporate Investment Grade index.

Performance Pillar:

Positive | Shannon Kirwin 12/12/2012

People Pillar:

Positive

Dave Tiberii took over this fund in 2003 after managing a $60 billion investment-grade bond portfolio of insurance money for GE Capital and working as a corporate-bond strategist for Goldman Sachs. He relies on T. Rowe's team of 15 experienced investment-grade bond analysts for security recommendations. As the fund's focus has expanded to include more international issues, the team has added overseas positions; five of its analysts are based in London and cover foreign companies. Tiberii also works with the company's 12-member high-yield credit analyst team.

Parent Pillar:

Positive | Katie Rushkewicz Reichart, CFA 11/14/2012

T. Rowe Price has made a name for itself by putting investors' interests first, maintaining a disciplined investment process, and consistently turning in peer-beating performances. The firm's sturdiness stems from its ability to attract and retain top talent. Professionals often spend their entire careers at the firm, and many of T. Rowe's top executives have come up through the ranks, including CEO James Kennedy and CIO Brian Rogers. Unsurprisingly, T. Rowe Price's manager tenure and retention rates rank well above industry norms, and analyst retention has been good, too. When a manager change does occur, it's typically because of a preannounced retirement, allowing for a months-long transition period. Managers write detailed shareholder letters, T. Rowe's website is exemplary, and manager ownership of fund shares is decent. Security selection, based on the firm's in-house fundamental analysis, drives the funds' strategies and performance, which has proved remarkably good across the board with strong fixed-income and equity offerings that are often less volatile than peers. However, T. Rowe still hasn't established itself as a powerhouse on the international side following its decade-long build-out of a global team. Meanwhile,

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T. Rowe Price Corporate Income ( PRPIX ) | 2013 Trowe Analyst Report

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the huge asset bases of its small-cap funds bear watching. Overall, though, T. Rowe has kept investors' interests in mind.

Price Pillar:

Positive

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