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Is T. Rowe Price QM US Small Cap Growth Equity (PRDSX) a Strong Mutual Fund Pick Right Now?

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Small Cap Growth fund seekers should consider taking a look at T. Rowe Price QM US Small Cap Growth Equity (PRDSX). PRDSX bears a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on nine forecasting factors like size, cost, and past performance.

Objective

PRDSX is part of the Small Cap Growth category, and this segment boasts an array of many other possible options. Small Cap Growth mutual funds usually focus their portfolios on stocks with large growth opportunities and a market cap of under $2 billion. These portfolios tend to feature small companies in up-and-coming industries and markets.

History of Fund/Manager

T. Rowe Price is based in Baltimore, MD, and is the manager of PRDSX. T. Rowe Price QM US Small Cap Growth Equity made its debut in January of 1998, and since then, PRDSX has accumulated about $4.96 billion in assets, per the most up-to-date date available. The fund is currently managed by Sudhir Nanda who has been in charge of the fund since October of 2006.

Performance

Of course, investors look for strong performance in funds. PRDSX has a 5-year annualized total return of 11.46% 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 14.73%, 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 11.82%, the standard deviation of PRDSX over the past three years is 14.87%. The standard deviation of the fund over the past 5 years is 14.55% compared to the category average of 12.03%. This makes the fund more volatile than its peers over the past half-decade.

Risk Factors

Investors should always remember the downsides to a potential investment, and this segment carries some risks one should be aware of. PRDSX lost 48.68% in the most recent bear market and outperformed its peer group by 5%. These results could imply that the fund is a better choice than its peers during a sliding market environment.

Nevertheless, investors should also note that the fund has a 5-year beta of 1.11, which means 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 negative alpha over the past 5 years of -1.06, 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.

This fund is currently holding about 95.52% stock in stocks, which have an average market capitalization of $5.45 billion. The fund has the heaviest exposure to the following market sectors:

  1. Industrial Cyclical
  2. Technology
  3. Services
  4. Other
  5. Health
This fund's turnover is about 19.2%, so the fund managers are 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, PRDSX is a no load fund. It has an expense ratio of 0.79% compared to the category average of 1.23%. PRDSX is actually cheaper than its peers when you consider factors like cost.

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 QM US Small Cap Growth Equity ( PRDSX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, average downside risk, and lower fees, T. Rowe Price QM US Small Cap Growth Equity ( PRDSX ) looks like a good potential choice for investors right now.

This could just be the start of your research on PRDSXin the Small Cap Growth category. Consider going to www.zacks.com/funds/mutual-funds for additional information about this fund, and all the others that we rank as well 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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