Small-cap stock performance had two distinct phases in the quarter. The first phase was characterized by steep declines in stock prices and a flight away from risk and toward quality; the second phase featured a strong rally, with high-quality stocks underperforming. Energy stocks, many of which were low quality, led the upturn. Oil prices rebounded from the high $20 per barrel range to the high $30 per barrel range by the end of the quarter. Despite the gains since mid-February, small-cap stocks have underperformed large-caps thus far this year.
The QM U.S. Small-Cap Growth Equity Fund returned −2.26% in the quarter compared with −1.95% for the MSCI US Small Cap Growth Index and −3.92% for the Lipper Small-Cap Growth Funds Index. For the 12 months ended March 31, 2016, the fund returned −7.56% versus −10.66% for the MSCI US Small Cap Growth Index and −10.18% for the Lipper Small-Cap Growth Funds Index. The fund's average annual total returns were −7.56%, 10.09%, and 8.09% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2016. The fund's expense ratio was 0.85% as of its fiscal year ended December 31, 2014.
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.
The QM U.S. Small-Cap Growth Equity Fund charges a 1%
redemption fee on shares held 90 days or less.
The performance information shown does not reflect the deduction of the redemption fee;
if it did, the performance would be lower.
Good stock selection in the consumer discretionary sector helped fund performance versus the MSCI benchmark, but stock selection in the consumer staples, materials, and financials sectors detracted from relative results. Sector allocations had very little impact on relative performance because they are similar to those of the benchmark. We believe having neutral sector weights versus our benchmark helps us avoid risks due to large moves in any one sector. While stock selection is based on a quantitative model, we also take into consideration T. Rowe Price's fundamental equity research and macroeconomic conditions.
The U.S. economy has been growing at steady, albeit unspectacular, pace. While the labor market remains healthy, the continuing softness of the global economy and the weakness in many emerging markets have seemingly weakened the Federal Reserve's resolve for future interest rate increases. This contributed to a weaker dollar during the first quarter, which should aid U.S. exporters and relieve some pressure on emerging markets. Also, continued low interest rates would be supportive of economic and corporate fundamentals and could encourage capital markets activity, especially mergers and acquisitions. In any event, we continue to favor high-quality stocks of companies that generate good cash flows and are judicious in deploying capital. We believe that such companies will distinguish themselves over time with superior performance relative to lower-quality businesses.