Stocks posted strong gains in the third quarter. Buoyed by hopes for continued monetary stimulus and a rebound in the global economy, investors bid up stocks despite slowing profit growth. Most of the major stock indexes moved further into record territory before pulling back late in the period. Gains were strongest in the Nasdaq Composite Index, which reached its best level in 13 years. Small-cap stocks, which typically see bigger price swings than large-caps, fared particularly well.
The Small-Cap Stock Fund returned 9.55% in the quarter compared with 10.21% for the Russell 2000 Index and 9.32% for the Lipper Small-Cap Core Funds Index. For the 12 months ended September 30, 2013, the fund returned 29.00% versus 30.06% for the Russell 2000 Index and 29.01% for the Lipper Small-Cap Core Funds Index. The fund's average annual total returns were 29.00%, 15.88%, and 11.48% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2013. The fund's expense ratio was 0.92% as of its fiscal year ended December 31, 2012.
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.
Information technology 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. Despite near-term challenges to health care, we believe the sector's long-term prospects are good, particularly among biotechnology companies, where we have a large allocation.
While monetary policy has always played an important role in driving markets, recent months have seen investors paying exceptional attention to signals coming from the central bank. We believe that, as the Fed eventually gets closer to winding down its stimulus, fundamental factors, such as corporate earnings and cash flow, will become the primary driver of stock prices. This may heighten the importance of research into individual stocks when seeking superior long-term returns, particularly as companies wrestle with only a moderately growing economy. In our view, small-cap valuations are at a premium relative to large-caps, and small-caps could face increased challenges outperforming larger-cap shares. We remain confident that our durable blend of growth and value will continue to benefit shareholders over time.