Small-cap growth stocks rose slightly in the second quarter, adding to strong first-quarter gains. For most of the period, the market was supported by merger activity, a strengthening economy, and better-than-expected first-quarter corporate earnings. Sluggish global growth, a stronger dollar, and concerns that the Federal Reserve would soon raise short-term interest rates occasionally weighed on the market. As the quarter ended, global markets reacted negatively to events in Greece, Puerto Rico, and China.
The Diversified Small-Cap Growth Fund returned 1.01% in the quarter compared with 1.37% for the MSCI US Small Cap Growth Index and 1.71% for the Lipper Small-Cap Growth Funds Index. For the 12 months ended June 30, 2015, the fund returned 13.28% versus 8.44% for the MSCI US Small Cap Growth Index and 9.63% for the Lipper Small-Cap Growth Funds Index. The fund's average annual total returns were 13.28%, 21.60%, and 10.99% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 2015. 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 Diversified Small-Cap Growth 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 financials and consumer discretionary sectors helped fund performance versus the MSCI benchmark. However, our investments in health care and information technology detracted from relative results. Sector allocations in aggregate made a slight positive contribution to performance; usually, they have little or no impact on relative performance because they are fairly 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.
Small-cap stocks have outperformed large-caps this year, in part because of increased takeover activity and steady economic growth. The Federal Reserve has been preparing to start a monetary tightening cycle, with the first increase in short-term rates expected sometime later this year. With interest rates very low, we do not expect a significant impact from small increases in rates. 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.