T. Rowe Price Small-Cap Value (PRSVX) Stands Out | Kiplinger

2022-05-06 19:43:00 By : Mr. Saikit Zhang

A jumble of worries, including Russia's invasion of Ukraine and the risk of recession, have weighed on small-company stocks in recent months.

But shares in value-priced, high-quality small companies – the sweet spot of T. Rowe Price Small-Cap Value (PRSVX), a member of the Kiplinger 25, the list of our favorite no-load mutual funds – have held up better than their small, fast-growing counterparts. Over the past 12 months, the fund's 0.9% loss is better than the 10.1% decline in the Russell 2000 small-company index. 

Manager David Wagner favors well-managed, profitable firms with strong balance sheets, and he likes to buy when their stock is cheap.

"We want to partner with a good company and own it for 10 years," says Wagner. "That leads us to more fallen angels and higher-quality companies that are differentiated from their peers."

The fund's turnover ratio, 25%, is a fraction of the average small-company stock fund's and implies a typical holding period of four years. 

Investment research firm Morningstar classifies Small-Cap Value as a small-blend fund, which means it holds a mix of stocks with growth and value characteristics. "If you have two similar companies, one is growing at a rate of 10% and the other one isn't, but both trade for 10 times earnings, that's not a trick question," he says. "You want the growing one." 

Over the past year, the fund's energy stocks helped its performance. Wagner beefed up the fund's energy stake when oil prices fell to record lows in early 2020. In recent months, those stocks have soared. Matador Resources (MTDR) shares climbed 129% over the past 12 months; Magnolia Oil & Gas (MGY) rose 121%. 

These days, Wagner says he is "leaning into growth stocks as they swoon." Small-cap healthcare stocks have taken a beating over the past year. In recent months, he has added to stakes in biotech firm Apellis Pharmaceuticals (APLS). Earlier this year, he also picked up more shares in health tech firms, including Phreesia (PHR), a patient intake and payment services provider. 

Since Wagner took over in mid-2014, the fund has earned an 8.8% annualized return, which beat the 8.3% gain in the Russell 2000 with 9% less volatility.

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