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Is T. Rowe Price Tax-Efficient Equity (PREFX) a Strong Mutual Fund Pick Right Now?

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Any investors hoping to find a Large Cap Growth fund could think about starting with T. Rowe Price Tax-Efficient Equity (PREFX - Free Report) . PREFX possesses a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on nine forecasting factors like size, cost, and past performance.

Objective

PREFX is classified in the Large Cap Growth segment by Zacks, an area full of possibilities. Companies are usually considered to be large-cap if their stock market valuation is more than $10 billion. Large Cap Growth mutual funds invest in many large U.S. firms that are projected to grow at a faster rate than their large-cap peers.

History of Fund/Manager

T. Rowe Price is based in Baltimore, MD, and is the manager of PREFX. T. Rowe Price Tax-Efficient Equity debuted in December of 2000. Since then, PREFX has accumulated assets of about $356.64 million, according to the most recently available information. The fund's current manager, Donald J. Peters, has been in charge of the fund since December of 2000.

Performance

Obviously, what investors are looking for in these funds is strong performance relative to their peers. This fund in particular has delivered a 5-year annualized total return of 12.44%, and is 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 15.88%, 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. Over the past three years, PREFX's standard deviation comes in at 13.27%, compared to the category average of 12.71%. The standard deviation of the fund over the past 5 years is 13.26% compared to the category average of 12.87%. This makes the fund more volatile than its peers over the past half-decade.

Risk Factors

One cannot ignore the volatility of this segment, however, as it is always important for investors to remember the downside to any potential investment. PREFX lost 51.82% in the most recent bear market and underperformed comparable funds by 2.96%. These results could imply that the fund is a worse choice than its peers during a sliding market environment.

Nevertheless, investors should also note that the fund has a 5-year beta of 1.08, 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. The fund has produced a positive alpha over the past 5 years of 2.05, which shows that managers in this portfolio are skilled in picking securities that generate better-than-benchmark returns.

Holdings

Exploring 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 mostly on equities that are traded in the United States.

Right now, 83.14% of this mutual fund's holdings are stocks, with an average market capitalization of $131.84 billion. The fund has the heaviest exposure to the following market sectors:

  1. Technology
  2. Retail Trade
  3. Finance
Turnover is 12.1%, which means this fund makes fewer trades than the average comparable fund.

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, PREFX is a no load fund. It has an expense ratio of 0.77% compared to the category average of 1.06%. From a cost perspective, PREFX is actually cheaper than its peers.

Investors need to be aware that with this product, the minimum initial investment is $2,500; each subsequent investment needs to be at least $100.

Bottom Line

Overall, T. Rowe Price Tax-Efficient Equity ( PREFX ) has a high Zacks Mutual Fund rank, strong performance, average downside risk, and lower fees compared to its peers.

Want even more information about PREFX? Then go over to Zacks.com and check out our mutual fund comparison tool, and all of the other great features that we have to help you with your mutual fund analysis for additional information. For analysis of the rest of your portfolio, make sure to visit Zacks.com for our full suite of tools which will help you investigate all of your stocks and funds in one place.


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