Is T. Rowe Price Small Cap Stock Fund (OTCFX) a Strong Mutual Fund Pick Right Now?
Any investors hoping to find a Small Cap Blend fund could think about starting with T. Rowe Price Small Cap Stock Fund (OTCFX). OTCFX carries a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on nine forecasting factors like size, cost, and past performance.
Objective
OTCFX is one of many Small Cap Blend funds to choose from. Small Cap Blend mutual funds allow investors a way to diversify their funds among various types of small-cap stocks. These funds seek companies with market capitalization of less than $2 billion, and aid in reducing volatility inherent in lower market cap stocks.
History of Fund/Manager
T. Rowe Price is based in Baltimore, MD, and is the manager of OTCFX. Since T. Rowe Price Small Cap Stock Fund made its debut in June of 1956, OTCFX has garnered more than $6.52 billion in assets. The fund's current manager, Frank M. Alonso, has been in charge of the fund since October of 2016.
Performance
Obviously, what investors are looking for in these funds is strong performance relative to their peers. This fund carries a 5-year annualized total return of 9.93%, and it sits in the top third among its category peers. But if you are looking for a shorter time frame, it is also worth looking at its 3-year annualized total return of 13.93%, which places it in the top third during this time-frame.
When looking at a fund's performance, it is also important to note the standard deviation of the returns. The lower the standard deviation, the less volatility the fund experiences. The standard deviation of OTCFX over the past three years is 14.32% compared to the category average of 11.2%. The fund's standard deviation over the past 5 years is 14.56% compared to the category average of 11.45%. This makes the fund more volatile than its peers over the past half-decade.
Risk Factors
Investors should always remember the downsides to a potential investment, and this segment carries some risks one should be aware of. In OTCFX's case, the fund lost 43.86% in the most recent bear market and outperformed its peer group by 8.42%. This means that the fund could possibly be a better choice than its peers during a down market environment.
Investors should note that the fund has a 5-year beta of 1.05, so it is likely going to be more volatile than the market at large. Alpha is an additional metric to take into consideration, since it represents a portfolio's performance on a risk-adjusted basis relative to a benchmark, which in this case, is the S&P 500. The fund has produced a positive alpha over the past 5 years of 0.18, which shows that managers in this portfolio are skilled in picking securities that generate better-than-benchmark returns.
Holdings
Examining the equity holdings of a mutual fund is also a valuable exercise. This can show us how the manager is applying their stated methodology, as well as if there are any inherent biases in their approach. For this particular fund, the focus is primarily on equities that are traded in the United States.
Currently, this mutual fund is holding 95.62% stock in stocks, which have an average market capitalization of $3.49 billion. The fund has the heaviest exposure to the following market sectors:
Finance
Technology
Other
Industrial Cyclical
Turnover is 33.5%, which means this fund makes fewer trades than comparable funds.
Expenses
As competition heats up in the mutual fund market, costs become increasingly important. Compared to its otherwise identical counterpart, a low-cost product will be an outperformer, all other things being equal. Thus, taking a closer look at cost-related metrics is vital for investors. In terms of fees, OTCFX is a no load fund. It has an expense ratio of 0.89% compared to the category average of 1.05%. Looking at the fund from a cost perspective, OTCFX is actually cheaper than its peers.
This fund requires a minimum initial investment of $2,500, and each subsequent investment should be at least $100.
Bottom Line
Overall, T. Rowe Price Small Cap Stock Fund ( OTCFX ) has a high Zacks Mutual Fund rank, strong performance, average downside risk, and lower fees compared to its peers.
For additional information on this product, or to compare it to other mutual funds in the Small Cap Blend, make sure to go to www.zacks.com/funds/mutual-funds for additional information. If you are more of a stock investor, make sure to also check out our Zacks Rank, and our full suite of tools we have available for novice and professional investors alike.
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