10 Questions With T. Rowe Price Growth Stock's Robert W. Smith

I don't typically get driven by macro calls. Take a look at some of the names that we have historically owned -- health care, for instance. I tend to like services over pharmaceuticals. Well, there are no big service companies overseas. In health care, shifting assets from pharma to health care services, you are moving money out of international. That's part of the reason you've seen a drop in the overseas weighting.

Second, as I said, I'm not real big on technology. But European technology is pretty expensive. I also have some issues with IT services. It's all on a stock-by-stock basis. I do have some overseas tech names I like. Vodafone(VOD Quote), Samsung -- we still own those.

My financials are all U.S. companies. U.S. financials tend to be cheaper. I understand the risks better.

9. You have weighed in on the looming pension crisis and that the market may not be taking seriously enough. How are you factoring it into your strategy? Are there companies you've shied away from because of pension liabilities? Any companies that have managed this issue well?

It's something I definitely look at and think about. I do own some General Electric(GE Quote), but otherwise, I tend not to own a lot of the old industrials most affected.

We have a few pharma companies that have issues. But health care service companies really don't have to worry about that issue. The financials are OK with options.

10. Wall Street and investors have been trying to get a grip on how much options are costing companies. I read recently about your efforts to evaluate what percentage of shares to executives in the form of options. Can you tell me how you evaluate options and what it says about management and the stock?

The past won't matter, so the issue is what companies do going forward.

I don't think anyone's going to have options that are more than a couple of percentage points per year dilution. How they account for it will be determined by somebody else.

If you think of tech companies, if they're trading at 25 times free cash flow, a portion of that cash flow is going to go to buying back stock to pay the options. For non-tech companies, it will probably come down to about 1%.

For earnings as a whole, it's probably going to drag earnings about 1% for a four- or five-year period as it layers in.

We'll be much tougher on companies that try to issue a lot of stock options.

Are there any that stand out to you among companies you own?

I'd say we're still in the process of working that through, without nailing somebody here.