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Is T. Rowe Price Equity Income Fund (PRFDX) a Strong Mutual Fund Pick Right Now?

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On the lookout for a Large Cap Value fund? Starting with T. Rowe Price Equity Income Fund (PRFDX - Free Report) is one possibility. PRFDX bears a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on nine forecasting factors like size, cost, and past performance.

Objective

PRFDX is classified in the Large Cap Value segment by Zacks, which is an area full of possibilities. Investors interested in a stable income stream fund these mutual funds very appealing because they have a unique investing strategy. Large Cap Value funds invest in stocks with a market capitalization of $10 billion or more, but whose share prices do not reflect their intrinsic value. This tactic often leads to low P/E ratios and high dividend yields; however, these funds'high growth opportunity are often slowed, as large-cap securities are generally in stable industries with low to moderate growth prospects.

History of Fund/Manager

PRFDX finds itself in the T. Rowe Price family, based out of Baltimore, MD. T. Rowe Price Equity Income Fund made its debut in October of 1985, and since then, PRFDX has accumulated about $15.48 billion in assets, per the most up-to-date date available. The fund's current manager, John D. Linehan, has been in charge of the fund since November of 2015.

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 7.42%, and is in the middle third among its category peers. Investors who prefer analyzing shorter time frames should look at its 3-year annualized total return of 10.2%, 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 PRFDX over the past three years is 12.51% compared to the category average of 10.31%. The fund's standard deviation over the past 5 years is 12.28% compared to the category average of 10.36%. 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. In PRFDX's case, the fund lost 52.57% in the most recent bear market and underperformed its peer group by 2%. This makes the fund a possibly worse choice than its peers during a sliding market environment.

Nevertheless, investors should also note that the fund has a 5-year beta of 0.98, which means it is hypothetically as volatile as the market at large. Another factor to consider is alpha, as it reflects a portfolio's performance on a risk-adjusted basis relative to a benchmark-in this case, the S&P 500. The fund has produced a negative alpha over the past 5 years of -2.88, which shows that managers in this portfolio find it difficult to pick 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 primarily on equities that are traded in the United States.

As of the last filing date, the mutual fund has 89.33% of its assets in stocks, with an average market capitalization of $127.99 billion. The fund has the heaviest exposure to the following market sectors:

  1. Finance
  2. Industrial Cyclical
  3. Technology
Turnover is 19.6%, which means, on average, the fund makes fewer trades than its comparable peers.

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, PRFDX is a no load fund. It has an expense ratio of 0.64% compared to the category average of 1.01%. PRFDX is actually cheaper than its peers when you consider factors like cost.

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 Equity Income Fund ( PRFDX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively similar performance, average downside risk, and lower fees, this fund looks like a good potential choice for investors right now.

Want even more information about PRFDX? 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. And don't forget, Zacks has all of your needs covered on the equity side too! Make sure to check out Zacks.com for more information on our screening capabilities, Rank, and all our articles as well.


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