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

Click on the company name to jump to Smith's comments on the stock.

AOL Time Warner

Carnival

Cendant

Cisco

Citigroup

ClearChannel

Dell

Freddie Mac

General Electric

Target

Kohl's

Microsoft

Overture Services

Vodafone

Target

Tyco

Univision

USA Interactive

Yahoo!

For folks who have found growth investing has been a pretty expensive proposition the past few years, it might be time to look up Robert W. Smith.

The manager of the $3.425 billion (PRGFX)T. Rowe Price Growth Stock fund has kept many investors from losing their shirts, in two key ways. First, Smith has taken a more conservative approach to growth than his brethren, which meant trailing his peers during the go-go late '90s.

But he has more than made up for it on the back end, ending 2000 on the upside and posting a modest loss in 2001 while other growth funds were free-falling.

His savvy picking puts the fund in the top 5% of his large-cap growth peers over a three-year period, and top 8% over the past 10 years. Second, because he gives his growth stocks time to grow, his less-frequent turnover has resulted in fund expenses that are half the size of its competitors.

In this week's 10 Questions, the skipper says he has been getting more aggressive lately, buying up "headline risk" stocks like Citigroup (C) and Tyco (TYC), media companies, even adding to big tech holdings like Cisco (CSCO). He also talks about some of the sectors he's avoiding, as well as where he's sees the market and the economy.

Looking for growth that won't cost you your shirt? Read on.

1. What is your philosophy on growth investing and how has it led you beat your peers while keeping expenses low?

We try to find companies with sustainable, double-digit growth over a business cycle -- so that doesn't mean it can't have a period of down earnings. We want companies that are growing much faster than the market that are high-return businesses that generate good cash flow, have a decent history of investment at a high rate. Over time, if we don't pay too high of a price for those companies, then we'll offer much better than market returns. It's pretty simple.

We prefer to have lower turnover over high. We think that a growth fund run at a fundamental basis should have a lower turnover. A low turnover means that you bought the right stocks and they're doing what you think they should be do. That helps keep expenses down.

In periods when we think the economy is going to get better, we'll tilt the portfolio toward faster economic growth. In periods where the economy is slow, we'll tilt it away from economic growth. In periods where the market is what I'd say a buying risk, we'll sell it. In periods where the market is selling risk, we'll buy it. Risk is not always economic risk. While much of risk is economic risk, there's also corporate risk.

2. Where are the market and economy heading and how are you positioning your portfolio to take advantage of those changes?

Robert W. Smith T. Rowe Price Growth Stock Fund

Tenure: Managed Fund Since March 1, 1997

Assets: $3.425 billion

Top Three Holdings: Citigroup, UnitedHealth Group, Freddie Mac

Expenses: 0.77% (Category Average: 1.51%)

Source: T. Rowe Price, Morningstar

Good question. There are periods where we have more economic growth and periods where we take on more just general risk. And we're sort of in both those periods now, even though I wouldn't say we're aggressively in both.

We do think the economy is going to show improvement -- cutting rates and more monetary liquidity will be good things. We think the consumer will hold together. We think that by the end of next year, capital spending will get better. If we put ourselves forward six or 12 months, we think people will feel better about the economy both here and overseas. I think Europe will cut rates eventually and that that will begin to stimulate their economy.

If we project forward, we don't see a huge amount of inflation, but we don't believe in the deflation spiral that could occur.

So, with that economic outlook, what have we done?

We bought slowly into some media where we have decent positions in Viacom(VIA), ClearChannel(CCU), Univision(UVN) and USA Interactive(USAI). In general, Internet content is an area we've nibbled up recently.