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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 bears a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on nine forecasting factors like size, cost, and past performance.

Objective

We classify PREFX in the Large Cap Growth category, an area rife with potential choices. Large Cap Growth funds invest in many large U.S. companies that are expected to grow much faster compared to other large-cap stocks. To be considered large-cap, companies must have a market cap over $10 billion.

History of Fund/Manager

T. Rowe Price is based in Baltimore, MD, and is the manager of PREFX. Since T. Rowe Price Tax-Efficient Equity made its debut in December of 2000, PREFX has garnered more than $628.06 million in assets. The fund is currently managed by Donald J. Peters who has been in charge of the fund since December of 2000.

Performance

Investors naturally seek funds with strong performance. This fund has delivered a 5-year annualized total return of 22.79%, and it sits 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 23.74%, 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 17.5%, the standard deviation of PREFX over the past three years is 20.52%. The fund's standard deviation over the past 5 years is 16.63% compared to the category average of 14.49%. This makes the fund more volatile than its peers over the past half-decade.

Risk Factors

The fund has a 5-year beta of 1.05, so investors should note that it is hypothetically more volatile than 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 positive alpha over the past 5 years of 3.8, which shows that managers in this portfolio are skilled in picking 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 76.23% of its assets in stocks, and these companies have an average market capitalization of $280.05 billion. The fund has the heaviest exposure to the following market sectors:

  1. Technology
  2. Retail Trade
Turnover is 25.7%, which means, on average, the fund makes fewer trades than its comparable peers.

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 0.78% compared to the category average of 1.02%. So, PREFX 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 Tax-Efficient Equity ( PREFX ) 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.

Your research on the Large Cap Growth segment doesn't have to stop here. You can check out all the great mutual fund tools we have to offer by going to www.zacks.com/funds/mutual-funds to see the additional features we offer as well 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.


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