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

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

Objective

PREFX is part of the Large Cap Growth section, and this segment boasts an array of other possible options. Large Cap Growth mutual funds purchase stakes in numerous large U.S. companies that are expected to develop and grow at a faster rate than other large-cap stocks. Companies are usually considered to be large-cap if their market capitalization is over $10 billion.

History of Fund/Manager

T. Rowe Price is responsible for PREFX, and the company is based out of Baltimore, MD. The T. Rowe Price Tax-Efficient Equity made its debut in December of 2000 and PREFX has managed to accumulate roughly $358.26 million in assets, as of the most recently available information. The fund is currently managed by Donald J. Peters who has been in charge of the fund since December of 2000.

Performance

Of course, investors look for strong performance in funds. PREFX has a 5-year annualized total return of 15.62% and is in the middle third among its category peers. If you're interested in shorter time frames, do not dismiss looking at the fund's 3 -year annualized total return of 7.7%, which places it in the middle third during this time-frame.

It is important to note that the product's returns may not reflect all its expenses. Any fees not reflected would lower the returns. Total returns do not reflect the fund's [%] sale charge. If sales charges were included, total returns would have been lower.

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 17.79%, the standard deviation of PREFX over the past three years is 20.61%. The fund's standard deviation over the past 5 years is 20.64% compared to the category average of 18.06%. This makes the fund more volatile than its peers over the past half-decade.

Risk Factors

Investors should note that the fund has a 5-year beta of 1.09, which means it is hypothetically more volatile than the market at large. 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. The fund has produced a negative alpha over the past 5 years of -0.15, which shows that 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 largely on equities that are traded in the United States.

Currently, this mutual fund is holding 79.81% in stocks, which have an average market capitalization of $666.16 billion. The fund has the heaviest exposure to the following market sectors:

  • Technology
  • Retail Trade
With turnover at about 16.8%, this fund is making 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, PREFX is a no load fund. It has an expense ratio of 0.83% compared to the category average of 0.94%. Looking at the fund 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.

Fees charged by investment advisors have not been taken into considiration. Returns would be less if those were included.

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.

For additional information on the Large Cap Growth 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 PREFX too for additional information. Zacks provides a full suite of tools to help you analyze your portfolio - both funds and stocks - in the most efficient way possible.


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