By Lewis Braham
It's hard not to be envious of people who got into T. Rowe Price Capital Appreciation before it closed to new investors on June 30, 2014. It has simply dominated every other fund in its Moderate Allocation Morningstar category since David Giroux took over as manager in 2006.
Over the past 15 years Capital Appreciation (ticker: PRWCX) has beaten 99% of its category peers, with 11.9% annualized returns. By comparison, the Vanguard Balanced Index, which has a similar risk profile as a 60% stocks/40% bonds index fund, has produced only a 9.6% return.
Giroux, a member of the Barron's Roundtable, has become a celebrity among conservative investors seeking a smoother ride than just stocks. That's why the fact that T. Rowe Price has launched three other funds that Giroux also runs has excited many investors.
The first of these was the T. Rowe Price Capital Appreciation Equity exchange-traded fund $(TCAF)$, which launched in June of 2023 and has over $5 billion in assets. Then came mutual fund T. Rowe Price Capital Appreciation And Income (PRCFX), which started in November of 2023 and has $323 million, followed by the T. Rowe Price Capital Appreciation Premium Income ETF (TCAL), which opened in March and has $104 million.
The irony is that the most popular, all-equity TCAF, is probably the least interesting of the three in the current environment. In the July Roundtable, Giroux was frank about his lack of enthusiasm for the stock market overall due to overvaluation. This assessment includes many household names for investors. " Tesla could fall 90% tomorrow, and I wouldn't buy a share, because it's just crazy overvalued," he says. " Palantir, I wouldn't buy a share -- crazy overvalued. Costco Wholesale -- [at a price of] 49 times earnings, Walmart, 37 times -- doesn't make any sense."
That said, he still likes stocks in underappreciated sectors such as healthcare -- medical-equipment maker Becton Dickinson and managed-care companies UnitedHealth and Cigna. He sees the last two pricing health insurance more aggressively above their costs such that next year will probably "be the first year in a couple of years, we actually start seeing earnings growth, not earning misses." He thinks all three stocks could more than double in the next five years.
Giroux designed TCAF to have a beta of 0.9 with the S&P 500 index -- a measure indicating a 90% risk sensitivity to market moves. "If the market goes down 1%, on average we're down 0.9%," he says. Given the S&P 500's overvaluation, that isn't much downside protection. Still, his goal is to have less downside and more upside than the market, a strategy that should work in the long term, if Giroux's past track record is any guide.
Yet having the bond cushion in the original Capital Appreciation will help more than TCAF's all-stock portfolio during the next downturn. For the risk-averse, T. Rowe Price Capital Appreciation And Income fund is the better play right now and most similar to Giroux's original fund.
"The way we think about [Capital Appreciation And Income] is it's for a lower-risk clientele, and an older clientele, but it leverages all the same tools," as the original fund, Giroux says. The allocations of stocks to bonds is largely inverted, with the original fund having 60% to 70% invested in high-quality companies trading at reasonable valuations, while the remainder is in high-yield bonds, floating rate loans, and cash. The new fund typically has "40% equity, 55% fixed income, and the rest in cash," Giroux says. It also owns more dividend-paying stocks.
The dividend stock tilt is a notable distinction, as the all-stock TCAF has a secondary goal of being tax-efficient, so it tends to underweight stocks that pay taxable dividends.
All of which makes T. Rowe Price Capital Appreciation Premium Income the most interesting of the three launches. Instead of tax efficiency, it seeks income and less risk, so it emphasizes dividend stocks and writes call options on them. This caps the upside of positions in exchange for an options premium similar to bond income.
Giroux sees TCAL as a competitor to the popular $41 billion JPMorgan Equity Premium Income ETF, which also writes call options, but ones on the S&P 500 instead of individual stocks.
"When you write calls on the S&P 500, that's easy from a trading perspective," he says. "But you get a lot less income" than writing individual stock calls. He expects TCAL to have a high-single digit yield over time with about half the downside risk of the overall market.
Also important, the options ETF largely avoids tech stocks -- they're only 6% of its current portfolio, versus 39% in TCAF. Because tech stocks have such high volatility on both the upside and down, they make terrible covered call options investments. "Writing calls on high-beta stocks, you actually tend to truncate your winners and have all the downside," he says. "So, the sector that has the worst risk-adjusted returns over time in covered calls is information technology."
Yet T. Rowe and Giroux aren't known for their options strategies. Moreover, one lingering concern is that Giroux's attention could be spread too thin with these new products, and this could hurt performance at his original fund.
"Every time we've looked at a new strategy, the first and only question we've asked is, 'Will this in any way negatively impact [T. Rowe Price Capital Appreciation]?' " he says. "We've been able to work on all these strategies and partner with other parts of the firm, so we're able to put hand on heart and say this does not in any way impact it."
Given Giroux's track record, it would be foolish to bet against him.
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August 20, 2025 04:00 ET (08:00 GMT)
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