Stocks posted stellar gains in the fourth quarter, bringing the major indexes to record highs, or in the case of the Nasdaq Composite Index, multiyear highs. Signs that the U.S. economy had regained some traction following its slowdown in late 2012 and early 2013 were central in driving the market's gains. Gains were strongest in the Nasdaq Composite Index, which reached its highest level in 13 years. Small- and mid-cap stocks surrendered market leadership to large-caps for the quarter but ended with generally stronger gains for the year. Value stocks held up somewhat better than growth stocks among small-caps.
The Small-Cap Stock Fund returned 8.58% in the quarter compared with 8.72% for the Russell 2000 Index and 8.80% for the Lipper Small-Cap Core Funds Index. For the 12 months ended December 31, 2013, the fund returned 37.65% versus 38.82% for the Russell 2000 Index and 36.13% for the Lipper Small-Cap Core Funds Index. The fund's average annual total returns were 37.65%, 24.39%, and 10.97% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 2013. The fund's expense ratio was 0.92% as of its fiscal year ended December 31, 2012.
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Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results.
Share price, principal value, and return will vary and you may have a gain or loss when you sell your shares.
Total return information before August 31, 1992 reflects performance by managers other than T. Rowe Price.
Information technology (IT) is the portfolio's largest sector allocation. We focus on companies with growing market share and strong management that can thrive regardless of the economic and IT spending environment. Our analysts are identifying appealing companies in mobile computing, online advertising and commerce, cloud computing, and data analytics. The portfolio has a large position in consumer discretionary, where we are focused on small companies that can become leaders in the future. The health care sector is an area ripe for innovation given advances in technology and new therapies, and we have invested in companies that can bring to market new drugs for unmet serious needs.
We would caution investors against expecting the continued pace of recent extraordinary gains. Indeed, earnings expectations for small-caps are quite elevated, opening up the possibility of negative revisions and investor disappointment. Also, to the extent global economies continue to recover, large company earnings should improve. This leads us to believe that large-caps will outperform small-caps in the coming quarters. Nonetheless, we remain confident that our durable blend of growth and value will continue to benefit unitholders over time.