Case 3

Case 3: Larry Puglia and the T.
Rowe
Price Blue Chip Growth Fund
Name: KangKang Liu

Student ID: 29177472
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Executive Summary
This report aims to analysis the reason why the Blue Chip Growth Fund can outperform
the market. What lead to the contradiction between Puglia’s superior performance and the
traditional EMH theory. Also we will discuss what is the investment strategy that Larry
Puglia used to achieve and sustain this performance.
1.Introduction
1.1. Blue Chip Growth Fund
The T. Rowe Price Blue Chip Growth Fund launched in 1993, The fund’s objective was
long-term capital growth, with income only a secondary consideration. It is mainly invested
in well-established large and medium-sized companies that believed had potential for above-
average earnings growth. Those companies with large market positions, seasoned
management that with effective capital allocation , as well as strong invested capital returns.
The sole manager of fund since 1997 is Puglia who is an analyst and joined T. Rowe
Price in 1990 following the financial services and pharmaceutical industries. With his
management the fund had generated superior returns on average for his investors over the life
of the fund.
2.Analysis
2.1.The reasons and strategies for the fund outperforming the market.
According to Morningstar, if we invested $10000 in the Blue Chip Growth Fundin
middle of 1993, then we can get $94021 on September 30, 2016. Puglia’s fund significantly
outperformed the average growth for the large-cap-growth category of $56,185 and growth
from investing in the S&P 500, which returned $76,100. (Appendix1)
Firstly the fund mainly focus on the long-term capital growth rather than the short-term
income. They choose companies with durable, sustainable earning per share growth rather
than companies just with high profits in short times. It is more reasonable.
Secondly, the fund have a very highly regarded global research team to set several
professional measurement to deeply analyze the development prospects of the target company
and evaluate whether to invest or not.
There are four measurements
(1). The company with growing market share and market size
(2). The company with competitive advantage
(3). The company with strong fundamentals including above-average earnings growth,
stable-to-improving margins, strong free cash flow, and return on equity.
(4). The company with seasoned management with a demonstrated track record .
Thirdly, the fund’s manager team remained modest, their investing style would not always be
in the same movements with the markets. So they will update their investment strategies in
different aspects such as searching news reports, economic data, and even rivals’ portfolios
for investment ideas. They know that there are still lots of managers can outperform the
market and they are willing to learn from others where possible.
2.2 the contradiction between Puglia’s superior performance and the traditional EMH theory.
The efficient market hypothesis (EMH) believes that capital market include all the
relevant informations into exist securities’ prices. If this theory is correct, no one can
outperform the market because all information the could predict performance is already
included into the stock price.
But in fact , Puglia’s superior performance is a clear violation of this assumption.It is
because that in EMH, the theory assume the market participants were always rational and
prices reflect all available information. But actually in reality, it is not.
3. Conclusion
Puglias’s superior fund performance break with the traditional EMH theory and has attracted
more investors.This is due to professional and comprehensive investment strategy, as well as
modest and cautious attitude in investment and management. This fund is well worth to
investment.
4.Reference
Larry Puglia and the T. Rowe Price Blue Chip Growth Fund. Retrieved from
https://services.hbsp.harvard.edu/api/courses/739341/items/UV7288-PDF-
ENG/sclinks/c4518e423c3134fff4dad61328ff258
Lucas, D. (2020).Efficient market hypothesis. Retrieved from
https://www.investopedia.com/terms/m/municipalbond.asp
Appendix 1: Morningstar, Inc., Report on T. Rowe Price Blue Chip Growth Fund:
Summary[1]
[1]
© 2016 Morningstar, Inc. All rights reserved. The information contained herein: (1) is
proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed;
(3) does not constitute investment advice offered by Morningstar; and (4) is not warranted to
be accurate, complete, or timely. Neither Morningstar nor its content providers are
responsible for any damages or losses arising from any use of this information. Past
performance is no guarantee of future results. Use of information from Morningstar does not
necessarily constitute agreement by Morningstar, Inc., of any investment philosophy or
strategy presented in this publication.
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Case 3: Larry Puglia and the T.

Name: KangKang Liu

1.1. Blue Chip Growth Fund

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