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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 possesses a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on nine forecasting factors like size, cost, and past performance.
Objective
Large Cap Value mutual funds invest in stocks with a market capitalization of $10 billion or more, but whose share prices do not reflect their intrinsic value; this value investing strategy often leads to low P/E ratios and high dividend yields, though growth levels are often curtailed. The high-growth opportunity of these funds are slowed even further, as large-cap securities are generally in stable industries with low to moderate growth prospects. Therefore, Large Cap Value funds are usually more appealing to investors who are interested in a stable income stream.
History of Fund/Manager
T. Rowe Price is based in Baltimore, MD, and is the manager of PRFDX. The T. Rowe Price Equity Income Fund made its debut in October of 1985 and PRFDX has managed to accumulate roughly $14.16 billion in assets, as of the most recently available information. The fund is currently managed by John D. Linehan who 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 in particular has delivered a 5-year annualized total return of 6.62%, and it sits in the middle 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 10.73%, 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. PRFDX's standard deviation over the past three years is 10.91% compared to the category average of 9.4%. Over the past 5 years, the standard deviation of the fund is 11.47% compared to the category average of 9.76%. 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. PRFDX lost 52.58% in the most recent bear market and underperformed its peer group by 1.94%. These results could imply that the fund is a worse choice than its peers during a sliding market environment.
Nevertheless, with a 5-year beta of 0.97, 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. The fund has produced a negative alpha over the past 5 years of -3.6, 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 principally on equities that are traded in the United States.
As of the last filing date, the mutual fund has 96.88% of its assets in stocks, which have an average market capitalization of $117.06 billion. The fund has the heaviest exposure to the following market sectors:
Finance
Industrial Cyclical
Technology
Turnover is 16.2%, 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, PRFDX is a no load fund. It has an expense ratio of 0.64% compared to the category average of 0.99%. Looking at the fund from a cost perspective, PRFDX is actually cheaper than its peers.
While the minimum initial investment for the product is $2,500, investors should also note that each subsequent investment needs to be at least $100.
Bottom Line
Overall, T. Rowe Price Equity Income Fund ( PRFDX ) has a high Zacks Mutual Fund rank, similar performance, average downside risk, and lower fees compared to its peers.
For additional information on the Large Cap Value 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 PRFDX 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.
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Is T. Rowe Price Equity Income Fund (PRFDX) a Strong Mutual Fund Pick Right Now?
On the lookout for a Large Cap Value fund? Starting with T. Rowe Price Equity Income Fund (PRFDX - Free Report) is one possibility. PRFDX possesses a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on nine forecasting factors like size, cost, and past performance.
Objective
Large Cap Value mutual funds invest in stocks with a market capitalization of $10 billion or more, but whose share prices do not reflect their intrinsic value; this value investing strategy often leads to low P/E ratios and high dividend yields, though growth levels are often curtailed. The high-growth opportunity of these funds are slowed even further, as large-cap securities are generally in stable industries with low to moderate growth prospects. Therefore, Large Cap Value funds are usually more appealing to investors who are interested in a stable income stream.
History of Fund/Manager
T. Rowe Price is based in Baltimore, MD, and is the manager of PRFDX. The T. Rowe Price Equity Income Fund made its debut in October of 1985 and PRFDX has managed to accumulate roughly $14.16 billion in assets, as of the most recently available information. The fund is currently managed by John D. Linehan who 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 in particular has delivered a 5-year annualized total return of 6.62%, and it sits in the middle 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 10.73%, 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. PRFDX's standard deviation over the past three years is 10.91% compared to the category average of 9.4%. Over the past 5 years, the standard deviation of the fund is 11.47% compared to the category average of 9.76%. 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. PRFDX lost 52.58% in the most recent bear market and underperformed its peer group by 1.94%. These results could imply that the fund is a worse choice than its peers during a sliding market environment.
Nevertheless, with a 5-year beta of 0.97, 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. The fund has produced a negative alpha over the past 5 years of -3.6, 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 principally on equities that are traded in the United States.
As of the last filing date, the mutual fund has 96.88% of its assets in stocks, which have an average market capitalization of $117.06 billion. The fund has the heaviest exposure to the following market sectors:
- Finance
- Industrial Cyclical
- Technology
Turnover is 16.2%, 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, PRFDX is a no load fund. It has an expense ratio of 0.64% compared to the category average of 0.99%. Looking at the fund from a cost perspective, PRFDX is actually cheaper than its peers.
While the minimum initial investment for the product is $2,500, investors should also note that each subsequent investment needs to be at least $100.
Bottom Line
Overall, T. Rowe Price Equity Income Fund ( PRFDX ) has a high Zacks Mutual Fund rank, similar performance, average downside risk, and lower fees compared to its peers.
For additional information on the Large Cap Value 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 PRFDX 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.