As the quarter began, U.S. stocks continued their bounce off February lows and ended the quarter in positive territory despite the volatility created by the UK's unexpected vote to exit the European Union (EU). Following the vote, forecasts for growth, especially in the UK and EU, were revised lower and expectations for U.S. interest rates hikes pushed out. The Russell 2000 Index ended higher despite a short-term plunge following the Brexit results. Small-caps led during the quarter, reversing a trend of large-cap dominance, and value outperformed growth across capitalization styles.
The Small-Cap Stock Fund returned 4.20% in the quarter compared with 3.79% for the Russell 2000 Index and 2.82% for the Lipper Small-Cap Core Funds Index. For the 12 months ended June 30, 2016, the fund returned −2.27% versus −6.73% for the Russell 2000 Index and −3.52% for the Lipper Small-Cap Core Funds Index. The fund's average annual total returns were −2.27%, 9.99%, and 8.39% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 2016. The fund's expense ratio was 0.90% as of its fiscal year ended December 31, 2015.
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.
Sector returns were generally positive, with materials buoyed by a recovery in commodity prices and defensive sectors getting a boost from the volatility. Investments within industrials and business services and technology were some of the strongest contributors to performance over the period. Holdings within the financials sector, particularly regional banks, weighed on results.
While current valuation levels give us pause, we don't see an immediate need to get more defensive. Unless a catalyst emerges that pushes the U.S. into a recession, small-caps are not poised for a sharp correction from here. We believe that small-caps will continue to lag versus large-caps, however, and that multiples will further compress until small-caps reach a more significant discount versus large-caps.