Small-cap growth stocks were mostly flat in the first quarter, as a decline in March erased earlier gains. Shares tumbled in January as the Federal Reserve started to taper its monthly asset purchases and emerging markets assets declined in anticipation of reduced global liquidity. Stocks rebounded strongly in February, however, amid stabilization in emerging markets and mostly favorable U.S. corporate earnings. Equities struggled in March due to Russia's controversial annexation of Ukraine's Crimean peninsula and retaliatory sanctions from the U.S. and the European Union. Concerns that the Fed might consider raising short-term interest rates sooner than previously expected also weighed on equities in March.
The Diversified Small-Cap Growth Fund returned −0.40% in the quarter compared with 1.75% for the MSCI US Small Cap Growth Index and −0.47% for the Lipper Small-Cap Growth Funds Index. For the 12 months ended March 31, 2014, the fund returned 27.59% versus 30.83% for the MSCI US Small Cap Growth Index and 25.59% for the Lipper Small-Cap Growth Funds Index. The fund's average annual total returns were 27.59%, 27.51%, and 10.02% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2014. The fund's expense ratio was 0.91% 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.
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.
Fund performance versus the MSCI benchmark was helped by good stock selection in the consumer discretionary and materials sectors. However, our information technology and health care investments fared worse than their benchmark peers. The fund's sector allocations, which typically resemble those of the index, had little impact on relative performance. Having neutral sector weights 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, given the unusual economic environment, macroeconomic conditions.
Small-cap growth stocks provided high returns in 2013, resulting in stretched valuations. In the final weeks of the first quarter-and continuing into April-we have seen a reversal in performance trends. Value stocks outperformed and high-priced "momentum" stocks, which are often the fastest growers, underperformed. We continue to favor high-quality stocks of companies that generate good cash flows and are judicious in deploying capital. As for the economy, it has continued showing signs of sustaining moderate growth, though the record cold weather might have a small negative effect on sales data for many companies, and the labor participation rate, which has been declining since 2007, has still not picked up. Fed tapering of bond purchases is likely to continue and should conclude by the end of 2014.