Most U.S. stock indexes posted modest gains in the first quarter and reached new or multiyear highs as investors balanced favorable corporate earnings against economic and geopolitical concerns. Corporate earnings were generally positive despite modest earnings growth, while economic data during the period were mixed. Political tensions in Ukraine contributed to market volatility. Small-cap stocks trailed mid- and large-cap shares, while value stocks performed better than growth stocks across all market capitalizations.
The Small-Cap Stock Fund returned 2.06% in the quarter compared with 1.12% for the Russell 2000 Index and 1.22% for the Lipper Small-Cap Core Funds Index. For the 12 months ended March 31, 2014, the fund returned 24.86% versus 24.90% for the Russell 2000 Index and 23.19% for the Lipper Small-Cap Core Funds Index. The fund's average annual total returns were 24.86%, 27.43%, and 10.68% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2014. 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.
During the period, we booked profits in information technology given that valuations were becoming stretched, in our view. Nonetheless, we continue to 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. We also reduced exposure to biotechnology following its strong run. Overall, health care holdings were a slight drag on performance relative to the Russell 2000 Index due to stock selection. Industrials and business services represents the portfolio's largest sector weighting, as we have identified appealing opportunities among manufacturers. We have a large position in consumer discretionary, where we are focused on companies that can become market leaders.
Small-cap value stocks outperformed growth stocks during the first quarter, and we believe that trend may continue following the strong returns of growth stocks last year. The interest in small-caps has contributed to heightened merger and acquisition activity, which could offer the opportunity to sell shares at a healthy premium. However, higher small-cap valuations have reduced the number of attractively valued stocks. We 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 benefit unitholders over time.