If investors are looking at the Small Cap Blend fund category, T. Rowe Price Small Cap Stock Fund (OTCFX Quick QuoteOTCFX - Free Report) could be a potential option. OTCFX possesses a Zacks Mutual Fund Rank of 2 (Buy), which is based on nine forecasting factors like size, cost, and past performance.

Objective

Zacks categorizes OTCFX as Small Cap Blend, which is an area packed with options. Usually targeting stocks with market caps of less than $2 billion, a Small Cap Blend mutual fund lets investors diversify their funds among other kinds of small-cap equities. This can help reduce risk found in companies that have a lower stock market valuation.

History of Fund/Manager

T. Rowe Price is based in Baltimore, MD, and is the manager of OTCFX. T. Rowe Price Small Cap Stock Fund debuted in June of 1956. Since then, OTCFX has accumulated assets of about $8.29 billion, according to the most recently available information. 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 has delivered a 5-year annualized total return of 9.29%, and it sits in the top third among its category peers. Investors who prefer analyzing shorter time frames should look at its 3-year annualized total return of 12.22%, 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 12.55% compared to the category average of 10.5%. Over the past 5 years, the standard deviation of the fund is 12.79% compared to the category average of 10.52%. This makes the fund more volatile than its peers over the past half-decade.

Risk Factors

Investors cannot discount the risks to this segment though, as it is always important to remember the downside for any potential investment. In OTCFX's case, the fund lost 43.87% in the most recent bear market and outperformed its peer group by 8.58%. This makes the fund a possibly better choice than its peers during a sliding market environment.

Nevertheless, with a 5-year beta of 1.01, the fund is likely to be as volatile as the market average. Because alpha represents a portfolio's performance on a risk-adjusted basis relative to a benchmark, which is the S&P 500 in this case, one should pay attention to this metric as well. With a negative alpha of -1.47, managers in this portfolio find it difficult to pick securities that generate better-than-benchmark returns.

Holdings

Investigating 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.

As of the last filing date, the mutual fund has 80.65% of its assets in stocks, with an average market capitalization of $4.05 billion. The fund has the heaviest exposure to the following market sectors:

1. Finance
2. Other
3. Industrial Cyclical
4. Technology

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, OTCFX is a no load fund. It has an expense ratio of 0.89% compared to the category average of 1.08%. So, OTCFX is actually cheaper than its peers from a cost perspective.

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

Bottom Line

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

For additional information on the Small Cap Blend area of the mutual fund world, make sure to check out www.zacks.com/funds/mutual-funds. There, you can see more about the ranking process, and dive even deeper into OTCFX too for additional information. Want to learn even more? We have a full suite of tools on stocks that you can use to find the best choices for your portfolio too, no matter what kind of investor you are.