U.S. stock markets generated solid gains in the first quarter, lifting several major indexes to multiyear highs. Investors appeared to react favorably to improving economic conditions and the Federal Reserve's decision to continue stimulus measures until the jobless rate meaningfully declines. Corporate earnings were generally strong and merger activity gained momentum, though it remained below peak levels. Mid- and small-cap stocks surpassed large-caps. In the small-cap space, growth stocks outperformed value, as measured by various Russell indexes.
The Small-Cap Stock Fund returned 12.52% in the quarter compared with 12.39% for the Russell 2000 Index and 11.85% for the Lipper Small-Cap Core Funds Index. For the 12 months ended March 31, 2013, the fund returned 17.01% versus 16.30% for the Russell 2000 Index and 15.86% for the Lipper Small-Cap Core Funds Index. The fund's average annual total returns were 17.01%, 12.71%, and 12.41% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2013. The fund's expense ratio was 0.92% as of its fiscal year ended December 31, 2011.
For up-to-date standardized total returns, including the most recent month-end performance, please click on the Performance tab, above.
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.
Industrials and business services constitutes our top sector position. We invest in companies that produce niche products that service growing end markets. Our largest industry exposure is to machinery, followed by electrical equipment and commercial services and supply firms. Financials represents our second-largest allocation in the fund. We continued to see opportunities in banks that are positioned to benefit from the stronger loan quality environment. In information technology, we own a number of software and communication equipment companies that are benefiting from the shift to mobile computing, online advertising, and cloud computing. Our health care allocation includes biotechnology and the providers and services industry.
The U.S. economy should continue to expand at a moderate pace, propelled by the improved housing and labor markets. The Federal Reserve is also likely to keep its stimulus programs in place until employment meaningfully improves. Nonetheless, fiscal policy remains unsettled, which could result in renewed market volatility. Corporate balance sheets are healthy, and there are indications that capital spending levels are improving. Small-cap valuations remain at a premium relative to large-caps, and we believe smaller-cap companies will face significant challenges outperforming larger-cap shares. While valuations appear more appealing among growth companies versus their value counterparts, we remain confident that our durable blend of growth and value will continue to benefit shareholders over time.