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

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Having trouble finding a Large Cap Value fund? T. Rowe Price Equity Income Fund (PRFDX - Free Report) is a potential starting point. PRFDX holds 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 one of many Large Cap Value mutual funds to choose from. These funds invest in equities with a market capitalization of $10 billion or more, but whose share prices do not reflect their intrinsic value. This strategy can often produce low P/E ratios and high dividend yields; growth levels; however, growth levels are oftentimes cut back. These funds'high growth opportunities are slowed even more since large-cap stocks are usually in more stable industries with low to moderate growth prospects. Thus, investors interested in a stable income stream fund Large Cap Value funds very appealing.

History of Fund/Manager

T. Rowe Price is based in Baltimore, MD, and is the manager of PRFDX. T. Rowe Price Equity Income Fund made its debut in October of 1985, and since then, PRFDX has accumulated about $15.95 billion in assets, per the most up-to-date date available. The fund's current manager, John Linehan, has been in charge of the fund since November of 2015.

Performance

Of course, investors look for strong performance in funds. This fund has delivered a 5-year annualized total return of 1.46%, and is 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 -2.57%, 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. The standard deviation of PRFDX over the past three years is 17.27% compared to the category average of 10.84%. Over the past 5 years, the standard deviation of the fund is 15.37% compared to the category average of 10.6%. 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. 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, with a 5-year beta of 1.08, the fund is likely to be more volatile than 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. With a negative alpha of -5.18, 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 89.86% of its assets in stocks, with an average market capitalization of $123.84 billion. The fund has the heaviest exposure to the following market sectors:

  1. Finance
  2. Industrial Cyclical
  3. Technology
  4. Non-Durable
With turnover at about 17.5%, this 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, PRFDX is a no load fund. It has an expense ratio of 0.64% compared to the category average of 1%. From a cost perspective, PRFDX is actually cheaper than its peers.

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, T. Rowe Price Equity Income Fund ( PRFDX ) looks like a good potential choice for investors right now.

Don't stop here for your research on Large Cap Value funds. We also have plenty more on our site in order to help you find the best possible fund for your portfolio. Make sure to check out www.zacks.com/funds/mutual-funds for more information about the world of funds, and feel free to compare PRFDX to its peers 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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