Is T. Rowe Price QM US Small Cap Growth Equity (PRDSX) a Strong Mutual Fund Pick Right Now?

There are plenty of choices in the Small Cap Growth category, but where should you start your research? Well, one fund that might be worth investigating is T. Rowe Price QM US Small Cap Growth Equity (PRDSX). PRDSX bears a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on nine forecasting factors like size, cost, and past performance.

Objective

The world of Small Cap Growth funds is an area filled with options, such as PRDSX. These funds tend to create their portfolios around stocks that sport large growth opportunities and market capitalization of less than $2 billion. The companies in these portfolios are usually on the smaller side, and are in up-and-coming industries and markets.

History of Fund/Manager

T. Rowe Price is based in Baltimore, MD, and is the manager of PRDSX. T. Rowe Price QM US Small Cap Growth Equity made its debut in January of 1998, and since then, PRDSX has accumulated about $4.04 billion in assets, per the most up-to-date date available. The fund’s current manager, Sudhir Nanda, has been in charge of the fund since October of 2006.

Performance

Of course, investors look for strong performance in funds. This fund has delivered a 5-year annualized total return of 10.64%, and is in the middle third among its category peers. If you’re interested in shorter time frames, do not dismiss looking at the fund’s 3-year annualized total return of 15.48%, which places it in the middle 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. Compared to the category average of 12.97%, the standard deviation of PRDSX over the past three years is 15.47%. The fund’s standard deviation over the past 5 years is 14.98% compared to the category average of 13.07%. This makes the fund more volatile than its peers over the past half-decade.

Risk Factors

It’s always important to be aware of the downsides to any future investment, so one should not discount the risks that come with this segment. PRDSX lost 48.68% in the most recent bear market and outperformed its peer group by 4%. These results could imply that the fund is a better choice than its peers during a sliding market environment.

Nevertheless, investors should also note that the fund has a 5-year beta of 1.14, which means it is hypothetically 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. PRDSX has generated a negative alpha over the past five years of -1.01, demonstrating that managers in this portfolio find it difficult to pick 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.

Right now, 96.68% of this mutual fund’s holdings are stocks, which have an average market capitalization of $6.32 billion. The fund has the heaviest exposure to the following market sectors:

  1. Technology
  2. Industrial Cyclical
  3. Services
  4. Health

Turnover is 17.9%, which means, on average, the fund makes fewer trades than comparable funds.

Expenses

For investors, taking a closer look at cost-related metrics is key, since costs are increasingly important for mutual fund investing. Competition is heating up in this space, and a lower cost product will likely outperform its otherwise identical counterpart, all things being equal. In terms of fees, PRDSX is a no load fund. It has an expense ratio of 0.80% compared to the category average of 1.22%. Looking at the fund from a cost perspective, PRDSX is actually cheaper than its peers.

While the minimum initial investment for the product is $2,500, investors should also note that each subsequent investment needs to be at least $100.

Bottom Line

Overall, T. Rowe Price QM US Small Cap Growth Equity ( PRDSX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively similar performance, average downside risk, and lower fees, T. Rowe Price QM US Small Cap Growth Equity ( PRDSX ) looks like a good potential choice for investors right now.

For additional information on this product, or to compare it to other mutual funds in the Small Cap Growth, make sure to go to www.zacks.com/funds/mutual-funds for additional information. If you want to check out our stock reports as well, make sure to go to Zacks.com to see all of the great tools we have to offer, including our time-tested Zacks Rank.

[“source=nasdaq”]